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Vertical Information Sharing in a Volatile Market

He, Chuan; Marklund, Johan LU and Vossen, Thomas (2008) In Marketing Science 27(3). p.513-530
Abstract
When demand is uncertain, manufacturers and retailers often have private information on future demand, and such information asymmetry impacts strategic interaction in distribution channels. In this paper, we investigate a channel consisting of a manufacturer and a downstream retailer facing a product market characterized by short product life, uncertain demand, and price rigidity. Assuming the firms have asymmetric information about the demand volatility, we examine the potential benefits of sharing information and contracts that facilitate such cooperation. We conclude that under a wholesale price regime, information sharing might not improve channel profits when the retailer underestimates the demand volatility but the manufacturer does... (More)
When demand is uncertain, manufacturers and retailers often have private information on future demand, and such information asymmetry impacts strategic interaction in distribution channels. In this paper, we investigate a channel consisting of a manufacturer and a downstream retailer facing a product market characterized by short product life, uncertain demand, and price rigidity. Assuming the firms have asymmetric information about the demand volatility, we examine the potential benefits of sharing information and contracts that facilitate such cooperation. We conclude that under a wholesale price regime, information sharing might not improve channel profits when the retailer underestimates the demand volatility but the manufacturer does not. Although information sharing is always beneficial under a two-part tariff regime, it is in general not sufficient to achieve sharing, and additional contractual arrangements are necessary. The contract types we consider to facilitate sharing are profit sharing and buyback contracts. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
channels of distribution, game theory, supply chains, decisions under uncertainty
in
Marketing Science
volume
27
issue
3
pages
513 - 530
publisher
Informs
external identifiers
  • wos:000256832400014
  • scopus:60849131777
ISSN
0732-2399
DOI
10.1287/mksc.1070.0312
language
English
LU publication?
yes
id
28c22d20-a9d3-48ba-b8ca-2be2ab9ddb14 (old id 1039062)
date added to LUP
2008-02-27 08:36:28
date last changed
2017-07-30 04:24:16
@article{28c22d20-a9d3-48ba-b8ca-2be2ab9ddb14,
  abstract     = {When demand is uncertain, manufacturers and retailers often have private information on future demand, and such information asymmetry impacts strategic interaction in distribution channels. In this paper, we investigate a channel consisting of a manufacturer and a downstream retailer facing a product market characterized by short product life, uncertain demand, and price rigidity. Assuming the firms have asymmetric information about the demand volatility, we examine the potential benefits of sharing information and contracts that facilitate such cooperation. We conclude that under a wholesale price regime, information sharing might not improve channel profits when the retailer underestimates the demand volatility but the manufacturer does not. Although information sharing is always beneficial under a two-part tariff regime, it is in general not sufficient to achieve sharing, and additional contractual arrangements are necessary. The contract types we consider to facilitate sharing are profit sharing and buyback contracts.},
  author       = {He, Chuan and Marklund, Johan and Vossen, Thomas},
  issn         = {0732-2399},
  keyword      = {channels of distribution,game theory,supply chains,decisions under uncertainty},
  language     = {eng},
  number       = {3},
  pages        = {513--530},
  publisher    = {Informs},
  series       = {Marketing Science},
  title        = {Vertical Information Sharing in a Volatile Market},
  url          = {http://dx.doi.org/10.1287/mksc.1070.0312},
  volume       = {27},
  year         = {2008},
}