To Share or Not to Share: Demand Forecast Sharing in a Distribution Channel

TLDR

In a distribution channel where the manufacturer holds superior demand‑forecast information, the study investigates the effects of information sharing. The authors aim to characterize equilibrium outcomes across three sharing formats and assess firms’ preferences for each. They analyze three sharing regimes—no sharing, voluntary sharing, and mandatory sharing—by modeling the manufacturer’s ex‑ante commitment, ex‑post decision, or regulatory mandate, respectively. Results show that with a risk‑neutral retailer, firms are indifferent between voluntary and mandatory sharing, the retailer prefers no sharing ex‑ante while the manufacturer favors mandatory sharing; higher forecast accuracy benefits both under voluntary and mandatory sharing but can harm both under no sharing, and risk aversion shifts preferences so that a risk‑averse retailer may lead the manufacturer to choose no sharing and accuracy improvements may hurt both firms even when sharing voluntarily.

Abstract

This paper studies information sharing in a distribution channel where the manufacturer possesses better demand-forecast information than the downstream retailer. We examine three information-sharing formats: no information sharing (i.e., the manufacturer ex ante commits to not sharing its forecast), voluntary information sharing (i.e., the manufacturer makes the sharing decision ex post after receiving the forecast), and mandatory information sharing (i.e., the manufacturer is mandated to share its forecast). We characterize the equilibrium outcomes under the three sharing formats and investigate the firms’ preferences regarding these formats. It is shown that when the retailer is risk-neutral, both firms are indifferent between voluntary and mandatory sharing. Among the three formats, ex ante, the retailer prefers the no-sharing format whereas the manufacturer prefers the mandatory-sharing format. In addition, we find that a more accurate forecast benefits both firms under voluntary- and mandatory-sharing formats, but may hurt both firms under the no-sharing format. Finally, we show that risk aversion plays a critical role in the firms’ sharing decisions and the impact of forecast accuracy. Specifically, when the retailer is risk-averse, the manufacturer may prefer the no-sharing format over the voluntary-sharing format, and improving forecast accuracy may hurt both firms even under voluntary sharing.