Buyer's strategic demand information sharing with an upstream echelon for entry promotion

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Abstract

Nowadays, because of the prevalence of information technology, the question of whether or not a firm should share various information vertically with outside firms constituting a supply chain has become a critical issue. Given this environmental change, this paper investigates the information sharing problem of whether a buyer purchasing products from a supplier should disclose its demand information in a noncooperative game setting. To date, a number of game-theoretic studies have shown that the optimal strategy for the buyer pursuing only its own profit is to disclose no demand information, because information disclosure causes a portion of the profit to be drained vertically from the buyer to the supplier. Contrary to this conventional insight in the literature, we demonstrate that the buyer can increase its own profit by fully disclosing information when there exists not only an incumbent supplier currently operating, but also a potential alternative supplier who waits for the chance to enter the upstream market. This finding means that the well-known result in the information sharing game in a supply chain can be reversed when there is an entry threat at the upstream supplier level. This result provides the practical implication that a buyer in a supply chain can strategically reveal demand information, which is seemingly disadvantageous to the buyer, to improve its profit through promoting the entry of another supplier as an alternative source of products. Consequently, we gain managerial insights that differ significantly from existing ones, which is the unique contribution of this study.

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