Is Transparency Good in a Supply Chain? The Downside of Information Acquisition Transparency

ABSTRACT In the supply chain, retailers usually have inherent advantages over manufacturers in obtaining demand information because they are closer to the final market and can directly interact with consumers. However, manufacturers cannot make sure whether their retailers have obtained extra demand information. The retailer's information acquisition state is also an important aspect of information asymmetry among supply chain participants, besides the demand information itself. We examine two modes observed in practice regarding the transparency of the retailer's information acquisition state: non‐transparency and full transparency. By incorporating a manufacturer's information belief adjustment strategy, our study thus addresses a retailer's acquisition and ex‐post sharing of information (i.e., the decision on how to share acquired information) under the two transparency modes. The main findings show that under the non‐transparency mode, the retailer shares low‐demand information but hides high‐demand information. With respect to the interim profit (i.e., after the acquisition cost is realized), the preferences of the manufacturer, retailer, and supply chain on the two modes depend on the information acquisition cost. With respect to the ex‐ante profit (i.e., before acquisition cost is realized), surprisingly, the manufacturer and supply chain always prefer the non‐transparency mode, whereas the retailer's preference for the two modes still depends on the acquisition cost. In addition, our equilibrium outcome reveals that the retailer and the manufacturer will never sign an internal information sharing agreement (i.e., never achieve the full transparency mode), whether before or after the realization of information acquisition cost. We also find that the expected consumer surplus under the non‐transparency mode is always higher than that under the full transparency mode, which is also a counterintuitive outcome. Finally, our main findings in the core model are relatively robust when considering acquisition cost sharing, general demand distribution, general acquisition cost distribution, ex‐ante informed retailer, and imperfect information acquisition.