Strategic Use of Demand-Enhancing Investment to Elicit Market Information

Abstract

Retailers are often willing to share demand information with manufacturers despite the danger that manufacturers will exploit such information for their own benefit. To this end, theoretical research in operations and marketing has consistently warned that retailers should be more cautious in sharing information upstream. In this paper, we seek to provide one explanation for this apparent disconnect between theory and practice, one rooted in manufacturer investments. Whether launching new products or supporting existing offerings, manufacturers often undertake substantial investments in advertising and promotion at the behest of their retailers. This paper shows that such manufacturer efforts are not purely altruistic but may be part of a more complex tit-for-tat wherein retailer information sharing and manufacturer investment are mutual best responses.

Keywords: Information sharing, demand-enhancing investment, supply chain management, disclosure, vertical relationship

JEL Classification: D82, L14, M41, M31