Bilateral Information Sharing and Pricing Incentives in a Retail Channel

Information Exchange in Supply Chain Management, ed. Albert Ha and Christopher S. Tang, Springer 2015

30 Pages Posted: 15 Jul 2015

See all articles by Anthony J. Dukes

Anthony J. Dukes

University of Southern California - Marshall School of Business

Esther Gal-Or

University of Pittsburgh - Katz Graduate School of Business

Tansev Geylani

University of Pittsburgh - Katz Graduate School of Business

Date Written: May 27, 2015

Abstract

This chapter evaluates the impact of sharing information on wholesale and retail pricing incentives as well as on the distribution of economic rents. We consider a model in which the manufacturer distributes its product to one or more retailers. Each firm receives a private signal as an estimate of stochastic consumer demand. We show that, in the absence of information sharing, the retailer is able to use the wholesale price to infer the manufacturer’s private signal. This creates a pricing distortion which benefits the retailer. Downward sharing of the manufacturer’s private signal eliminates this distortion. In contrast, when the retailer shares its private signal upstream, the manufacturer is able to set price closer to retailer’s value, thus capturing downstream consumer surplus. In general, the manufacturer benefits from more information sharing at the loss of downstream retailers and consumers. Hence, information sharing arrangements in equilibrium require side payments and/or sufficient cost savings (e.g., reduced inventory costs).

Keywords: Supply Chain, Information Sharing, Pricing, Distribution Channel

JEL Classification: L11, L81

Suggested Citation

Dukes, Anthony J. and Gal-Or, Esther and Geylani, Tansev, Bilateral Information Sharing and Pricing Incentives in a Retail Channel (May 27, 2015). Information Exchange in Supply Chain Management, ed. Albert Ha and Christopher S. Tang, Springer 2015. Available at SSRN: https://ssrn.com/abstract=2629617

Anthony J. Dukes (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States
213-740-3846 (Phone)

HOME PAGE: http://sites.usc.edu/anthonydukes/

Esther Gal-Or

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Tansev Geylani

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

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