Information Sharing in Competing Supply Chains with Production Cost Reduction

Abstract

We consider the problem of sharing demand information in two competing supply chains, each consisting of one manufacturer and one retailer. Information sharing allows a manufacturer’s wholesale price to respond to demand signal, which benefits the supply chain if the manufacturer is efficient in cost reduction and hurts it otherwise. It also allows a manufacturer’s cost reduction level to respond to demand signal, which always benefits the supply chain. A supply chain that engages in information sharing triggers a reaction from the rival chain. Such a reaction may benefit or hurt the first supply chain, depending on whether the retailers compete on quantity or price, and whether or not the manufacturers are efficient in cost reduction. With quantity competition, information sharing occurs when the manufacturers are efficient in cost reduction. It is more likely to occur when either information is less accurate or competition is less intense. With price competition, information sharing occurs when either competition is intense or the manufacturers are efficient in cost reduction. It is more likely to occur when information is more accurate. When information sharing is beneficial to a supply chain, a manufacturer can buy information from a retailer with a side payment, which is zero if the manufacturer is sufficiently efficient in cost reduction. The e-companion is available at https://doi.org/10.1287/msom.2016.0607 .

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