Two-sided Benefits of Price Transparency in Smallholder Supply Chains

72 Pages Posted: 13 Apr 2022 Last revised: 15 Dec 2024

See all articles by Yuan Shi

Yuan Shi

Massachusetts Institute of Technology (MIT) - Operations Research Center

Joann F. de Zegher

Massachusetts Institute of Technology (MIT) - Management Science (MS)

Irene Lo

Stanford

Date Written: April 12, 2023

Abstract

Information platforms have emerged in the developing world to improve price transparency and welfare for smallholder suppliers. Meanwhile, sustaining welfare improvement often requires such platforms to benefit both suppliers and buyers. This paper studies the impact of price transparency on market price and welfare in smallholder supply chains, and identifies conditions and driving forces for creating benefits to both suppliers and buyers. Motivated by granular data from smallholder supply chains, we develop a new Hotelling model of price search, where price-setting buyers face the operational challenges of demand asymmetry and costly underage or overage amid uncertain supply. We find that high overage costs, combined with  high demand asymmetry that dominates random supply variations, give rise to two-sided benefits, driven by price competition benefiting the suppliers and demand signaling benefiting the buyers under increased transparency. Moreover, achieving two-sided benefit requires implementing a well-chosen level of price transparency, and, in some cases, creating a low uncertainty environment for buyers. These results help close the gap between the empirical literature and the theoretical economic literature on this topic, and offer possible explanations for the variation in empirical findings. We provide managerial recommendations for information platform designers, including for our partnering platform, on identifying the target markets and whether to implement full or partial transparency.

Keywords: smallholder supply chains, information platforms, newsvendor, collusion, price transparency

Suggested Citation

Shi, Yuan and de Zegher, Joann F. and Lo, Irene, Two-sided Benefits of Price Transparency in Smallholder Supply Chains (April 12, 2023). Available at SSRN: https://ssrn.com/abstract=4052928 or http://dx.doi.org/10.2139/ssrn.4052928

Yuan Shi (Contact Author)

Massachusetts Institute of Technology (MIT) - Operations Research Center ( email )

77 Massachusetts Avenue
Bldg. E 40-149
Cambridge, MA 02139
United States

Joann F. De Zegher

Massachusetts Institute of Technology (MIT) - Management Science (MS) ( email )

United States

Irene Lo

Stanford ( email )

United States

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