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Public Forecast Information Sharing in a Market with Competing Supply Chains

Author

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  • Noam Shamir

    (School of Management, Tel Aviv University, Tel Aviv 699780, Israel)

  • Hyoduk Shin

    (Rady School of Management, University of California, San Diego, La Jolla, California 92093)

Abstract

Studying the operational motivation of a retailer to publicly announce his forecast information, this paper shows that by making forecast information publicly available to both his manufacturer and to the competitor, a retailer is able to credibly share his forecast information—an outcome that cannot be achieved by merely exchanging information within the supply chain. We model a market comprised of an incumbent supply chain facing the possible entry of a competing supply chain. In each supply chain, a retailer sources the product from a manufacturer, and the manufacturers must secure capacity prior to the beginning of the selling season. Due to the superior knowledge of the incumbent retailer about the consumer market, he privately observes a signal about the consumer’s demand, which may be high or low. We first confirm that the retailer cannot credibly share this forecast information only with his manufacturer within the supply chain, since, regardless of the observed signal, the retailer has an incentive to inflate to induce the manufacturer to secure a high capacity level. However, when the information is also shared with the competitor, the incumbent retailer faces the trade-off between the desire to secure an ample capacity level and the fear of intense competition. By making information publicly available, it is possible to achieve truthful information sharing; an incumbent retailer observing a high forecast benefits from the increased capacity level to such an extent that he is willing to engage in intense competition to prove his accountability for the shared information. On the other hand, an incumbent retailer with a low forecast is not willing to engage in intense competition in exchange for the high level of capacity; thus, he truthfully reveals his low forecast to weaken competition. Moreover, we demonstrate that this public information sharing can benefit all the firms in the market as well as consumers. In addition, we show that compared to the advance purchase contract, all the firms except the incumbent manufacturer can be better off using public information sharing under a simple wholesale price contract. This paper was accepted by Yossi Aviv, operations management .

Suggested Citation

  • Noam Shamir & Hyoduk Shin, 2016. "Public Forecast Information Sharing in a Market with Competing Supply Chains," Management Science, INFORMS, vol. 62(10), pages 2994-3022, October.
  • Handle: RePEc:inm:ormnsc:v:62:y:2016:i:10:p:2994-3022
    DOI: 10.1287/mnsc.2015.2261
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    Cited by:

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    3. Ronen Gradwohl & Moshe Tennenholtz, 2020. "Coopetition Against an Amazon," Papers 2005.10038, arXiv.org, revised Sep 2021.
    4. Oded Berman & Mohammad M. Fazel-Zarandi & Dmitry Krass, 2019. "Truthful Cheap Talk: Why Operational Flexibility May Lead to Truthful Communication," Management Science, INFORMS, vol. 65(4), pages 1624-1641, April.
    5. Kostas Bimpikis & Davide Crapis & Alireza Tahbaz-Salehi, 2019. "Information Sale and Competition," Management Science, INFORMS, vol. 67(6), pages 2646-2664, June.
    6. Avinadav, Tal & Shamir, Noam, 2021. "The effect of information asymmetry on ordering and capacity decisions in supply chains," European Journal of Operational Research, Elsevier, vol. 292(2), pages 562-578.
    7. Huang, Yanting & Wang, Zongjun, 2017. "Values of information sharing: A comparison of supplier-remanufacturing and manufacturer-remanufacturing scenarios," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 106(C), pages 20-44.
    8. Huang, Song & Guan, Xu & Xiao, Binqing, 2018. "Incentive provision for demand information acquisition in a dual-channel supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 116(C), pages 42-58.
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