Acquisition transparency and induced supplier encroachment

This study investigates a retailer’s incentive of information acquisition when the supplier may encroach the retail channel. We show that a retailer’s acquisition behavior inevitably leaks some information to her upstream supplier, which can be utilized by the supplier to better design his price and encroachment decisions. When acquisition is observable to the supplier, the retailer may voluntarily give up this free option to prevent the supplier’s demand belief updating and also his possible encroachment. When acquisition is unobservable to the supplier, the retailer always undertakes acquisition in equilibrium, which endows her with an information advantage over the supplier. This information advantage, however, also eliminates the deterrence effect of acquisition on supplier encroachment and allows the supplier to encroach more frequently. The retailer may prefer observable acquisition to unobservable acquisition, whereas the supplier’s and the supply chain’s preferences over different acquisition options may vary according to the setup cost.