Information sharing and leakage in the two-echelon supply chain

Abstract

We consider ex post demand information sharing and leakage in a two-echelon supply chain consisting of one supplier and two retailers competing in quantities. The incumbent retailer has an advantage to acquire information about the market at a cost. If he invests in information acquisition, he privately acquires a signal about the market demand. We examine the incumbent's incentive of information acquisition and sharing, and the upstream supplier's information leakage strategy. We confirm that the incumbent's information acquisition and sharing decisions depend on whether the information acquisition is observable. When it is observable, the incumbent fully shares his private signals even though the shared high signal may hurt him. However, when it is unobservable, the incumbent can share the favorable signal (low signal) and withhold the unfavorable signal (high signal). Moreover, we also find that the supplier will always leak the signal to the entrant no matter what signal she acquires. In addition, we demonstrate under the information sharing and leakage strategy, it may benefit the whole supply chain when the retail competition intensity is not very large.