Demand forecast sharing for a dominant retailer with supplier encroachment and quality decisions

This paper investigates a dominant brick-and-mortar retailer’s incentive to share demand forecast information with a supplier who has the encroachment capacity of online selling and makes quality decisions. If the retailer does not share the demand forecast, the supplier can infer the forecast from the retailer’s retail margin decision, which leads to a signaling game. That is, the launch of the supplier’s online channel can result in costly signaling behavior for the retailer, where the retailer must increase the retail margin to signal the true demand forecast, which may hurt both chain members. Consequently, the supplier chooses to encroach when the retailer shares information, while may choose not to encroach when the retailer does not share information in order to avoid costly signaling behavior by the retailer. Complementing the conventional understanding, the retailer may share information to encourage the supplier to encroach if the information accuracy of the demand forecast or the direct selling cost of the supplier is small or if both the information accuracy of the demand forecast and the direct selling cost of the supplier are large, while prefers to keep the information private to prevent the supplier’s intention to establish a direct channel otherwise. Furthermore, two extensions are made to verify the robustness of our key findings.