Incentive mechanism and pricing strategy in engineering service outsourcing

Engineering service outsourcing is an important way for manufacturer to face competition,concentrate on core business and reduce cost.In engineering service outsourcing,there is moral hazard problem because and it is hard the service is offered by supplier to customer directly for the manufacturer to measure the service outcome.Therefore,the manufacturer should build up an incentive mechanism to stimulate the supplier to offer high quality service.This paper studies the optimal incentive mechanism for engineering service outsourcing.By setting up the incentive model based on the model of moral hazard under continuous working performance,the research mainly discusses the following questions: What is the prior condition for the supplier to offer costly effort? What's the optimal incentive mechanism? How does the mechanism vary according to the different degrees of incentive? What is optimal pricing strategy for engineering service outsourcing? etc.The results show that: 1)The incentive mechanism is necessary and available just in the service supply chains which comply with certain demand distributions.2)There is a discontinuous point on the incentive payment curve.3)The degree of incentive and ratio of profit allocation can be modified through changing the value of the parameters.