Product upgrade and advanced quality disclosure in a supply chain

Abstract

Retailers frequently preannounce the quality of upcoming products, highlighting the importance of information disclosure in supply chains. This study examines the interaction between advanced quality disclosure and product upgrades within a supply chain, where a supplier can release either upgraded products exclusively or alongside regular products in a subsequent period. Using a game-theoretical model, we investigate how the supplier’s upgrade decisions and the retailer’s disclosure strategy affect consumer behaviour, particularly strategic waiting, and product cannibalisation. Our results show that when only upgraded products are offered, the retailer discloses product quality in advance if the innovation level is high. When both regular and upgraded products are available, the retailer chooses advanced disclosure when the innovation level is either high or low. Even when the product improvement is minimal, advanced disclosure reduces cannibalisation and attracts more consumers to the upgraded products, thereby boosting the retailer’s profits. Additionally, the supplier may choose not to upgrade products when the innovation cost is moderate. These insights suggest that advanced disclosure can mitigate both cannibalisation and consumer waiting, particularly in high-tech industries or incremental innovation scenarios, such as electronics and smart home sectors, where the preannouncement of product information is crucial.