Information sharing in a supply chain with horizontal competition
Lode Li
Yale School of Management, Box 208200, New Haven, Connecticut 06520
This article may be used only for the purposes of research, teaching, and/or private study. Commercial use
or systematic downloading (by robots or other automatic processes) is prohibited without explicit Publisher
approval.


This paper examines the incentives for firms to share information vertically in a two-level
supply chain in which there are an upstream firm (a manufacturer) and many downstream
firms (retailers). The retailers are engaged in a Cournot competition and are endowed
with some private information. Vertical information sharing has two effects: “direct effect”
due to the changes in strategy by the parties involved in sharing the information and “indirect
effect” (or “leakage effect”) due to the changes in strategy by other competing firms
(who may infer the information from the actions of the informed parties). Both changes
would affect the profitability of the firms. We show that the leakage effect discourages the
retailers from sharing their demand information with the manufacturer while encouraging
them to share their cost information. On the other hand, the direct effect always discourages
the retailers from sharing their information. When voluntary information sharing is not possible,
we identify conditions under which information can be traded and show how price
should be determined to facilitate such information exchange. We also examine the impact
of vertical information sharing on the total supply chain profits and social benefits.