Information disclosure in a supply chain with copycat threat

Outsourcing is a common operations strategy nowadays, but it may lead to an unintended consequence of supplier copycatting. When outsourcing, there is some subtle information that the manufacturer knows but is optional for the supplier to carry out the production task, such as how fit this product is to the market trend (product fit). This paper considers a game setting that the manufacturer has private information on product fit during the production stage, and it decides whether or not to disclose this piece of information to the supplier. The supplier decides whether or not to exert production process enhancement effort and whether or not to enter the market with a copycat. We discover two novel disclosure structures: (1) only disclosing the intermediate range of product fit information, and (2) always withholding information even though disclosure is costless. We find that the manufacturer can be better off, while the supplier can be worse off, from the supplier copycatting option. Our work lends support to the practitioners’ recommendation that the manufacturer should withhold some crucial information from the supplier and keep the communication as basic as possible and uncovers the bright side of supplier’s copycat on the manufacturer’s profitability.