Retailer Information Sharing with Supplier Encroachment
25 Pages Posted: 15 May 2017
Date Written: May 15, 2017
Abstract
This paper investigates a retailer's incentive of sharing the private demand information with a supplier who may encroach the retail channel by exerting a fixed entry cost. Although the conventional wisdom suggests that a retailer should withhold her private demand observation to keep the information advantage over the supplier, we reach a different conclusion by showing that the retailer may prefer to voluntarily share the demand information in anticipation of the supplier encroachment. The intuition is that facing the threat of supplier encroachment, sharing the low demand information may prevent the supplier's intention to establish the direct selling channel, so as to avoid the downstream channel competition. This strategic effect of information sharing is new and can become dominant only if the entry cost of encroachment is intermediate and the channel substitution rate is relatively high. Otherwise, when either condition does not hold, the supplier's equilibrium encroachment decision is consistent and irrespective of the retailer's information decision; so that it is more beneficial for the retailer to withhold the demand information. The change of information sharing structure in the channel also leads to some unintended payoff implications, as we show that the supplier's and channel's payoffs exhibit non-monotonic relations with respect to the entry cost or channel substitution rate.
Keywords: information sharing; supplier encroachment; channel competition; game theory
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