Pricing and quality decisions in virtual product supply chains with information sharing

This article investigates the retail price and quality effort joint decisions in a virtual product supply chain with information sharing. The virtual product supply chain consists of a supplier, who develops a virtual product, and a distributor, who distributes the product. We model two popular competitions as Stackelberg and Nash games and identify the equilibrium conditions for the pricing and quality effort decisions. In Stackelberg game, the supplier's profit monotonically increases in the elasticity of quality effort. In Nash game, and a higher elasticity of quality effort does not always benefit the supplier. The distributor will voluntarily share demand information only with a large quality economy. Our analyses reveal that the double marginalisation is weaker when the distributor shares information. However, the distributor's mark-up decision is independent with the cost of quality effort. With a large quality economy, information sharing benefits both supply chain players under certain conditions. We show that supply chain game structure does not affect the distributor's decision in information sharing, and the decision only depends on the market structure. In the extension, nonlinear demand functions are investigated, and the results show that most of the results from the main analyses still hold with a few exceptions.