Should a manufacturer give up pricing power in a vertical information-sharing channel?

This work considers a dual-channel supply chain in which a manufacturer sells an experience product through its retailer and directly to consumers. The market potential is stochastic, and the two agents receive different signals about its value. The manufacturer invests in product’s quality, and this investment cannot be observed by the retailer. We look at two information-sharing scenarios, i.e., one-sided and two-sided sharing, and compute and contrast the equilibrium outcomes. In particular, we characterize the conditions under which the manufacturer prefers to give up its wholesale pricing power, to avoid information leakage. It is shown that the manufacturer would like to give up the pricing power if the exogenous wholesale price is moderate. Moreover, such willingness increases with the manufacturer’s information accuracy under one-sided information-sharing mechanism, but shrinks under two-sided information-sharing mode. Additionally, it is found that information leakage discourages the retailer from sharing the information, but encourages the manufacturer to do that.