Strategic Implications of Acquiring Information in a Distribution Channel
46 Pages Posted: 21 Jan 2016
Date Written: January 2016
Manufacturers and retailers often acquire market information to help guide their marketing activities. Yet this strategy has yielded mixed results. In this paper, we examine how the outcome of acquiring information is affected by the strategic interaction between channel members. We obtain implications for who acquires information in a distribution channel – the manufacturer, retailer or both – and whether channel members should collaborate to jointly acquire information. Conventional wisdom suggests that acquiring market information should be beneficial because it helps improve decisions. However, we find that acquiring information can be counterproductive for either channel member because of strategic channel interaction. We show that, as a result, only the manufacturer may acquire information in the channel, even if information is costless to acquire for the retailer. Moreover, channel members may acquire information independently even though acquiring information jointly would have been more cost-effective. Interestingly, acquiring information jointly is mutually beneficial only if either manufacturer advertising or retailer merchandising is sufficiently effective in stimulating demand, but not if both are effective. Our findings lead to implications for when information acquisition is beneficial and for whom.
Keywords: Distribution Channels, Game Theory, Information Acquisition, Perfect Bayesian Equilibrium
JEL Classification: D82, C72, L14, M31
Suggested Citation: Suggested Citation