We investigate information flow in two-tier supply chains, where retailers order from suppliers and sell in a market with uncertain demand. The retailers each have access to a demand signal and can exchange signals (horizontal information sharing). The suppliers can offer the retailers differential payments to gain access to their signals (vertical information acquisition). We demonstrate that retailer competition is a necessary condition to sustain information flow, whereas supplier competition precludes vertical information acquisition. Facing horizontal competition, the retailers can have an incentive to exchange signals if competition is less intense; and this incentive is stronger when they order from independent suppliers than when they order from a monopolist supplier. In the setting where two retailers order from a monopolist supplier, once the retailers exchange signals, the supplier will acquire signals from them both; otherwise, it will have an incentive to acquire signals if the signals are sufficiently correlated. It can be incentive compatible for horizontal information sharing and vertical information acquisition to coexist so that the retailers’ signals are available to all parties. Under this circumstance, the supplier will profit from information flow and the retailers can earn profit gains as well, whereas the consumers will be worse off.

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We investigate information flow in a setting in which 2 retailers order from a supplier and sell to a market with uncertain demand. Each retailer has access to a signal. The retailers can disclose signals to each other (horizontal information sharing), while the supplier can solicit signals by offering retailers differential payments as incentives for signal disclosure (vertical information acquisition). In the base setting, market competition is in quantity, and a retailer can fully infer the signal that the other retailer discloses to the supplier. We show that the supplier prefers to sequentialize the procedure for information acquisition. Moreover, vertical information acquisition by the supplier is a strategic complement to horizontal information sharing between the retailers to establish information flow. In the equilibrium, the retailers have no incentive to exchange signals, but system wide information transparency can be realized through a combination of information acquisition and inference. We further study the signaling effect, whereby the supplier utilizes wholesale pricing as an instrument to affect the retailers' inference of the shared signals, and price competition to explore their impacts on the supplier's preference for sequential acquisition and the sustainability of information flow. KEYWORDScooperative decision, inference, information sharing, market competition, signaling 1 Naval Res Logistics 2018;65:135-159 wileyonlinelibrary.com/journal/nav

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