Sharing Imperfect Demand Information in Competing Supply Chains with Production Diseconomies

Abstract

This paper studies the incentive for vertical information sharing in competing supply chains with production technologies that exhibit diseconomies of scale. We consider a model of two supply chains each consisting of one manufacturer selling to one retailer, with the retailers engaging in Cournot competition. The problem is analyzed using a multi-stage game. We fully characterize the information sharing, wholesale pricing and retail quantity decisions in equilibrium and show that information sharing benets a supply chain when the production diseconomy is large, competition is less intense, and the information is less accurate. When a supply chain makes its information more accurate or production more ecient, it may be worse o if such an improvement induces the rms in the rival supply chain to stop sharing information. We also consider the model with Bertrand competition. When there is no production diseconomy, information sharing benets a supply chain when competition is intense and the information is accurate. When there is production diseconomy, a manufacturer may be worse o by receiving information. Our results show that information sharing in one supply chain triggers a competitive reaction from the other that is negative under Cournot competition but may be positive under Bertrand competition.

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