Failure fee under stochastic demand and information asymmetry

We study a failure fee contract designed by a price-setting newsvendor retailer under information asymmetry. Under the contract, the manufacturer must pay the retailer a failure fee if the sales volume misses a target. We propose and compare two types of failure fee contracts: a brand-by-brand contract and a uniform contract. We find that the retailer prefers one to the other depending on parameters.