Downstream Information Sharing in Agricultural Supply Chains with Investment Spillovers

This paper investigates a product distributor’s incentive to share private consumer preference information with a farming cooperative that possesses the capability for quality improvement. Although conventional view holds that in the presence of the investment spillover effect, downstream information sharing surely occurs when the upstream investment cost is low enough, our results show that (due to the decreasing marginal effect of quality investment) the product distributor voluntarily commits to sharing information only when the quality investment cost is in a medium range. And this ex ante sharing behavior can be induced through a precontracted side payment when the quality cost slightly deviates from the range in which voluntary sharing occurs. Given the challenge of predicting consumer preference for perennial crops, we examine the product distributor’s incentives for ordering and ex post sharing under upfront quality improvement, finding that the distributor can partially disclose the acquired information even facing a potential mismatch between supply and demand. An equilibrium ordering scheme is proposed whereby the distributor prearranges transportation capacity. Interestingly, under delayed information acquisition, partially sharing information is more effective in motivating the farming cooperative to invest more at the outset than not sharing at all.