Information Acquisition and Sharing in a Vertical Relationship

Abstract

Manufacturers can acquire consumer information in a sequential manner and influence downstream retail behavior through sharing the acquired information. This paper examines the interaction between a manufacturer's optimal information acquisition and sharing strategies in a vertical relationship, capturing the impacts of both the flexibility to sequentially control information collection and the flexibility in ex post voluntary sharing. We show that when information acquisition is sequential, the manufacturer may not acquire perfect information even if it is costless to do so. This self-restriction in information acquisition follows from the manufacturer's motivation to strategically influence retail behavior. When information acquisition is inflexible and constrained to be either zero or perfect information, the manufacturer acquires less (more) information under mandatory (voluntary) sharing. Moreover, voluntary sharing unambiguously leads to more information being generated, because the manufacturer has the option to strategically withhold the acquired information that turns out to be unfavorable. Finally, the conditions under which the manufacturer ex ante prefers a particular sharing format are examined.

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