Ex post demand information sharing between differentiated suppliers and a common retailer

Abstract

We consider ex post demand information sharing in a two-echelon supply chain in which two suppliers sell differentiated products through a common retailer. We model three scenarios of information sharing to characterise the conditions under which information sharing may benefit or hurt different players: (1) no supplier is informed; (2) only one supplier is informed; and (3) both suppliers are informed. We find that the retailer may voluntarily share the low demand information when the product differentiation and demand magnitude satisfy certain conditions. In contrast, the retailer has no incentive to share the high demand information, even though this information benefits the suppliers. To achieve information sharing, we propose a side payment mechanism, which allows benefitted players to subsidise hurtful players. Finally, we extend our model by considering a situation where the suppliers have limited capacity and may invest to ramp up production capacity to satisfy a high demand.