Supply Chain Information Sharing in a Competitive Environment

The subject of information sharing has regained the interests of both academics and practitioners. Today a huge amount of information is being interchanged between manufacturers and retailers, between retailers and consumers, between companies and investors, and also among the parties in the same level of a vertical chain. How to measure the gains and losses of such activities to the parties involved is an important issue in supply chain management. This chapter studies the incentives for firms to share information vertically in the presence of horizontal competition. We do so in a setting with one manufacturer and many competing retailers where each retailer possesses some private information about the downstream market demand or about its own cost. Horizontal competition in the downstream brings about new effects of information sharing. In general, vertical information sharing, e.g., transmission of pointof-sales data between a retailer and a manufacturer, has two effects, the “direct effect” on the payoffs between the parties engaged in information sharing, and the “indirect effect” of information sharing on other competing firms. For example, knowing that the manufacturer receives some information from a retailer, other retailers may respond to the fact by changing their strategies, and such reaction may cause additional gains or losses to the parties directly engaged in information sharing.