Wholesale price confidentiality under demand uncertainty in competing supply chains

In this paper, we investigate the impact of wholesale price confidentiality in competing supply chains with demand uncertainty. Based on the two manufacturers’ initiative on wholesale price confidentiality, we examine three different schemes: full confidentiality, partial confidentiality, and no confidentiality. Our results show that, under Cournot competition, wholesale price confidentiality not only harms the rival supply chain, but also hurts the retailer in the same chain. More intriguingly, the manufacturer herself would be harmed as well under certain circumstances. Under Bertrand competition, both manufacturers are worse off from wholesale price confidentiality. However, this confidentiality would benefit the retailer in the same supply chain. Surprisingly, although wholesale price confidentiality eliminates the possibility for the retailer in the rival supply chain to infer additional information, the rival retailer would be better off when competition is less intense and the demand forecast is more accurate. Additionally, we analyze the impact of wholesale price confidentiality on the retail price and consumer surplus. We show that the wholesale price confidentiality will sustain higher retail prices under Cournot competition but lower retail prices under Bertrand competition. Therefore, wholesale price confidentiality consistently decreases consumer surplus and social welfare under Cournot competition, whereas under Bertrand competition it can be welfare-improving when both demand uncertainty and competition are low. Our results offer new insights into pricing confidentiality and suggest that it is not always good for upstream firms to regard pricing as a category of information that constitutes their trade secret.