To Share or Not to Share: Demand Forecast Sharing in a Distribution Channel

Marketing Science, 2016, Forthcoming

60 Pages Posted: 8 Feb 2015 Last revised: 15 Sep 2016

See all articles by Baojun Jiang

Baojun Jiang

Washington University in Saint Louis - John M. Olin Business School

Lin Tian

Fudan University, School of Management

Yifan Xu

Fudan University

Fuqiang Zhang

Washington University in St. Louis - John M. Olin Business School

Date Written: November 23, 2015

Abstract

This paper studies information sharing in a distribution channel where the manufacturer possesses better demand-forecast information than the downstream retailer. We examine three information-sharing formats: no information sharing (i.e., the manufacturer ex ante commits to not sharing its forecast), voluntary information sharing (i.e., the manufacturer makes the sharing decision ex post after receiving the forecast), and mandatory information sharing (i.e., the manufacturer is mandated to share its forecast). We characterize the equilibrium outcomes under the three sharing formats and investigate the firms’ preferences regarding these formats. It is shown that when the retailer is risk-neutral, both firms are indifferent between voluntary and mandatory sharing. Among the three formats, ex ante, the retailer prefers the no-sharing format whereas the manufacturer prefers the mandatory-sharing format. In addition, we find that a more accurate forecast benefits both firms under voluntary- and mandatory-sharing formats, but may hurt both firms under the no-sharing format. Finally, we show that risk aversion plays a critical role in the firms’ sharing decisions and the impact of forecast accuracy. Specifically, when the retailer is risk-averse, the manufacturer may prefer the no-sharing format over the voluntary-sharing format, and improving forecast accuracy may hurt both firms even under voluntary sharing.

Keywords: information sharing, signaling, forecast accuracy, risk aversion, distribution channel, demand uncertainty

Suggested Citation

Jiang, Baojun and Tian, Lin and Xu, Yifan and Zhang, Fuqiang, To Share or Not to Share: Demand Forecast Sharing in a Distribution Channel (November 23, 2015). Marketing Science, 2016, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2561600 or http://dx.doi.org/10.2139/ssrn.2561600

Baojun Jiang (Contact Author)

Washington University in Saint Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States
3149353315 (Phone)

HOME PAGE: http://apps.olin.wustl.edu/faculty/Jiang/

Lin Tian

Fudan University, School of Management ( email )

670 Guoshun Road, Yangpu District
Shanghai, 200433
China

Yifan Xu

Fudan University ( email )

Beijing West District Baiyun Load 10th
Shanghai, 100045
China

Fuqiang Zhang

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

HOME PAGE: http://www.olin.wustl.edu/faculty/zhang/

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