Information sharing in supply chains from the market game perspective

Abstract

This paper investigates the incentives for firms to vertically share information in a two-tier supply chain comprising a single supplier selling products to multiple retailers. We employ a wholesale market model based on the market-game mechanism, where the wholesale price is determined by both the supplier’s and retailers’ decisions. Our analysis considers two cases of private information: demand information held by the retailers and demand information held by the supplier. In the case where retailers have private demand information, we demonstrate that all retailers are willing to commit to sharing information when their information is homogeneous. When their information is heterogeneous, there may be only a portion of retailers willing to commit to sharing information. The equilibrium number of retailers who commit to sharing information is influenced by the degree of demand uncertainty, the consumer market size, and the unit cost for production. In particular, when demand uncertainty is sufficiently high and the unit cost is sufficiently large relative to the market size, all retailers are willing to share information. These findings are validated through numerical experiments conducted in general settings. Furthermore, our analysis illustrates that suppliers can incentivize retailers to share information by employing either a price-discrimination strategy or a revenue-sharing strategy. We also highlight the distinct impacts of these two strategies. In the case where the supplier holds private demand information, we show that information sharing benefits all supply chain members as well as the society.