Sharing Demand Information with Retailer Under Upstream Competition
34 Pages Posted: 13 Jun 2019 Last revised: 26 Jun 2019
Date Written: May 15, 2019
We analyze information sharing collaboration between two manufacturers and a retailer under upstream competition. The manufacturers produce partially substitutable products, which are stocked by the retailer who sells them in the market characterized by random demand. The manufacturers are privately informed about uncertain demand, and decide on whether to share this information with the retailer. We show that by not sharing information a manufacturer ends up distorting its wholesale price to signal its private information to the retailer, and under upstream competition this distortion is propagated to the competing manufacturer. Thus, while a manufacturer’s decision to not share information may benefit or hurt its own profit, this always benefits the competing manufacturer. Under low intensity of competition, signaling driven distortions exacerbate double marginalization and hurt all parties, whereas under more intense competition, these distortions help manufacturers offset downward pressure on wholesale prices. Thus, in equilibrium similarly informed manufacturers share information in the former case, but not in the latter case. And when manufacturers differ in their information accuracies, only the more-informed manufacturer benefits from sharing information. The retailer always benefits from both manufacturers sharing information, but its benefits are larger when more-informed manufacturer shares information. Finally, our results remain robust when we allow the retailer to be privately informed, and manufacturer-retailer collaboration to involve sharing of information by both parties.
Keywords: Information Sharing, Supply Chain Management, Competition
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