Sharing Demand Information in Competing Supply Chains with Production Diseconomies

• Published in: Management science Vol. 57; no. 3; pp. 566 - 581
• Main Authors: Ha, Albert Y., Tong, Shilu, Zhang, Hongtao
• Format: Journal Article
• Language: English
• Published: Hanover, MD INFORMS 01.03.2011; Institute for Operations Research and the Management Sciences
• Series: Management Science
• Subjects: Applied sciences; Chain stores; Competition; Demand (Economics); Diseconomies; Economic competition; Exact sciences and technology; Firm modelling; Information exchange; Information sharing; Inventory control, production control. Distribution; Logistics; Management; Management science; Manufacturing; Modelling; Operational research and scientific management; Operational research. Management science; Production costs; Production management; Production systems; Retail industry; Retail prices; Retail stores; Retail trade; Studies; Supply; supply chain competition; Supply chain management; Supply chains; Wholesale prices; Hong Kong; Chain reaction; information sharing; Information system; Competitive reaction; Modeling; Economic model; supply chain competition; Retailers; supply chain management; Supplier; Firm management; Damaging; Logistics; Oligopoly
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.1100.1295

This paper studies the incentive for vertical information sharing in competing supply chains with production technologies that exhibit diseconomies of scale. We consider a model of two supply chains each consisting of one manufacturer selling to one retailer, with the retailers engaging in Cournot or Bertrand competition. For Cournot retail competition, we show that information sharing benefits a supply chain when (1) the production diseconomy is large and (2) either competition is less intense or at least one retailer's information is less accurate. A supply chain may become worse off when making its information more accurate or production diseconomy smaller, if such an improvement induces the firms in the rival supply chain to cease sharing information. For Bertrand retail competition, we show that information sharing benefits a supply chain when (1) the production diseconomy is large and (2) either competition is less intense or information is more accurate. Under Bertrand competition a manufacturer may be worse off by receiving information, which is never the case under Cournot competition. Information sharing in one supply chain triggers a competitive reaction from the other supply chain and this reaction is damaging to the first supply chain under Cournot competition but may be beneficial under Bertrand competition. This paper was accepted by Martin Lariviere, operations management.