Collaborative information and capacity sharing: Strategies for managing uncertain demand with competitors

This research explores the collaborative information and capacity sharing strategy to mitigate supply-demand mismatches between two competing manufacturers under demand uncertainty. The transfer price in the capacity sharing contract can be determined either before or after demand is revealed, referred to as ex-ante and ex-post capacity sharing schemes, respectively. By comparing equilibrium outcomes across different sharing strategies, this research examines how transfer price determination timing affects manufacturers' production decisions, identifies manufacturers' optimal sharing strategies, and analyzes the implications for consumer surplus and social welfare. The results reveal, first, that under ex-ante capacity sharing, the transfer price initially decreases and then remains constant as capacity increases, while the transfer quantity varies non-monotonically with capacity, which may benefit only one manufacturer and may even induce the low-demand firm to exit market competition. In contrast, under ex-post capacity sharing, the transfer price decreases monotonically and the transfer quantity follows an inverted-U pattern in capacity, ensuring mutual profitability for both manufacturers. Moreover, ex-ante capacity sharing generates larger transfer quantities and generally involves lower transfer prices than ex-post capacity sharing. Second, information sharing benefits manufacturers, whereas capacity sharing occurs only at the moderate capacity level. Although ex-ante capacity sharing outperforms ex-post in most cases, strong market competition and high demand uncertainty make ex-post capacity sharing preferable. In addition, higher market competition intensity increases manufacturers’ incentives to adopt capacity-sharing strategy. Finally, capacity sharing improves consumer surplus and social welfare in most cases relative to no sharing, with ex-ante capacity sharing delivering the strongest welfare gains.