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Confidentiality and Information Sharing in Supply Chain Coordination

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Author Info

  • Lode Li

    ()
    (Yale School of Management, New Haven, Connecticut 06520, and Cheung Kong Graduate School of Business, 100738 Beijing, China)

  • Hongtao Zhang

    ()
    (Department of Information and Systems Management, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

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    Abstract

    We consider information sharing in a decentralized supply chain where one manufacturer supplies to multiple retailers competing in price. Each retailer has some private information about the uncertain demand function which he may choose to disclose to the manufacturer. The manufacturer then sets a wholesale price based on the information received. The information exchange is said to be confidential if the manufacturer keeps the received information to herself, or nonconfidential if she discloses the information to some or all other retailers. Without confidentiality, information sharing is not possible because it benefits the manufacturer but hurts the retailers. With confidentiality, all parties have incentive to engage in information sharing if retail competition is intense. Under confidentiality, the retailers infer the shared information from the wholesale price and this gives rise to a signaling effect that makes the manufacturer's demand more price elastic, resulting in a lower equilibrium wholesale price and a higher supply chain profit. When all retailers share their information confidentially, they will truthfully report the information and the supply chain profit will achieve its maximum in equilibrium.

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    File URL: http://dx.doi.org/10.1287/mnsc.1070.0851
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 54 (2008)
    Issue (Month): 8 (August)
    Pages: 1467-1481

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    Handle: RePEc:inm:ormnsc:v:54:y:2008:i:8:p:1467-1481

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    Related research

    Keywords: information sharing; confidentiality; signaling; supply chain coordination; truth telling;

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    Cited by:
    1. Chonnikarn Fern Jira & Michael W. Toffel, 2011. "Engaging Supply Chains in Climate Change," Harvard Business School Working Papers 12-026, Harvard Business School, revised Oct 2012.
    2. Shamir, Noam, 2012. "Strategic information sharing between competing retailers in a supply chain with endogenous wholesale price," International Journal of Production Economics, Elsevier, vol. 136(2), pages 352-365.
    3. Choi, Tsan-Ming & Sethi, Suresh, 2010. "Innovative quick response programs: A review," International Journal of Production Economics, Elsevier, vol. 127(1), pages 1-12, September.
    4. Zhu, Xiaowei & Mukhopadhyay, Samar K. & Yue, Xiaohang, 2011. "Role of forecast effort on supply chain profitability under various information sharing scenarios," International Journal of Production Economics, Elsevier, vol. 129(2), pages 284-291, February.
    5. Liu, Zugang (Leo) & Anderson, Trisha D. & Cruz, Jose M., 2012. "Consumer environmental awareness and competition in two-stage supply chains," European Journal of Operational Research, Elsevier, vol. 218(3), pages 602-613.
    6. Hoque, M.A., 2011. "Generalized single-vendor multi-buyer integrated inventory supply chain models with a better synchronization," International Journal of Production Economics, Elsevier, vol. 131(2), pages 463-472, June.
    7. Prajogo, Daniel & Olhager, Jan, 2012. "Supply chain integration and performance: The effects of long-term relationships, information technology and sharing, and logistics integration," International Journal of Production Economics, Elsevier, vol. 135(1), pages 514-522.
    8. Arya, Anil & Mittendorf, Brian, 2013. "Discretionary disclosure in the presence of dual distribution channels," Journal of Accounting and Economics, Elsevier, vol. 55(2), pages 168-182.
    9. Brian Mittendorf & Jiwoong Shin & Dae-Hee Yoon, 2013. "Manufacturer marketing initiatives and retailer information sharing," Quantitative Marketing and Economics, Springer, vol. 11(2), pages 263-287, June.

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