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Sharing Demand Information in Competing Supply Chains with Production Diseconomies

  • Albert Y. Ha

    ()

    (School of Business and Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

  • Shilu Tong

    ()

    (Australian School of Business, University of New South Wales, Sydney, New South Wales 2052, Australia)

  • Hongtao Zhang

    ()

    (School of Business and Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

Registered author(s):

    This paper studies the incentive for vertical information sharing in competing supply chains with production technologies that exhibit diseconomies of scale. We consider a model of two supply chains each consisting of one manufacturer selling to one retailer, with the retailers engaging in Cournot or Bertrand competition. For Cournot retail competition, we show that information sharing benefits a supply chain when (1) the production diseconomy is large and (2) either competition is less intense or at least one retailer's information is less accurate. A supply chain may become worse off when making its information more accurate or production diseconomy smaller, if such an improvement induces the firms in the rival supply chain to cease sharing information. For Bertrand retail competition, we show that information sharing benefits a supply chain when (1) the production diseconomy is large and (2) either competition is less intense or information is more accurate. Under Bertrand competition a manufacturer may be worse off by receiving information, which is never the case under Cournot competition. Information sharing in one supply chain triggers a competitive reaction from the other supply chain and this reaction is damaging to the first supply chain under Cournot competition but may be beneficial under Bertrand competition. This paper was accepted by Martin Lariviere, operations management.

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    File URL: http://dx.doi.org/10.1287/mnsc.1100.1295
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 57 (2011)
    Issue (Month): 3 (March)
    Pages: 566-581

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    Handle: RePEc:inm:ormnsc:v:57:y:2011:i:3:p:566-581
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    1. Eichenbaum, Martin, 1989. "Some Empirical Evidence on the Production Level and Production Cost Smoothing Models of Inventory Investment," American Economic Review, American Economic Association, vol. 79(4), pages 853-64, September.
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    15. Fuqiang Zhang, 2006. "Competition, Cooperation, and Information Sharing in a Two-Echelon Assembly System," Manufacturing & Service Operations Management, INFORMS, vol. 8(3), pages 273-291, March.
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