Information Sharing in a Supply Chain with Horizontal Competition

Abstract

This paper examines the incentives for firms to share information vertically in a two-level supply chain in which there are an upstream firm (a manufacturer) and many downstream firms (retailers). The retailers are engaged in a Cournot competition and are endowed with some private information. Vertical information sharing has two effects: "direct effect" due to the changes in strategy by the parties involved in sharing the information and "indirect effect" (or "leakage effect") due to the changes in strategy by other competing firms (who may infer the information from the actions of the informed parties). Both changes would affect the profitability of the firms. We show that the leakage effect discourages the retailers from sharing their demand information with the manufacturer while encouraging them to share their cost information. On the other hand, the direct effect always discourages the retailers from sharing their information. When voluntary information sharing is not possible, we identify conditions under which information can be traded and show how price should be determined to facilitate such information exchange. We also examine the impact of vertical information sharing on the total supply chain profits and social benefits.

Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination

“…One may expand the direct information sharing setting (see, e.g., Li 2002) with retailer demand forecast investments preceding information sharing and determination of the wholesale price by the supplier. Exploring the retailer incentives in forecast investments and supply chain efficiency in that case could be an interesting future research topic as well.…”

“…One of the primary conclusions derived from this literature is that when competing firms have private information on a common uncertain variable, they do not want to share this information with their competitors. Li (2002) analyzes information sharing in a one-to-many supply chain and concludes that competing downstream firms refuse to share demand information not only with other downstream firms, but also with the supplier. Zhu (2004) shows that information transparency in an online procurement market under oligopoly can hurt the participating firms.…”

“…2. This is the standard downward sloping Cournot inverse demand function with the slope coefficient normalized to 1 (see, e.g., Shapiro 1986, Li 2002. That is, the retailers' products are substitutes, and the increase in quantity for one of them decreases the consumer price for all retailers.…”

“…Third, with or without explicit information sharing, a contract agreed between a supplier and downstream partner might "leak" information to a firm about other firms' information (cf. Li 2002). Thus, after contracting, a downstream partner can update his information based on what he learns from the contract.…”

Outsourcing Competition and Information Sharing with Asymmetrically Informed Suppliers

“…Representative studies include Li (2002), Li and Zhang (2008), and Anand and Goyal (2009). Chen (2003) reviews the supply chain management literature on information sharing.…”