Disclosure of quality preference-revealing information in a supply chain with competitive products

Abstract

We examine price setting and the decision to disclose quality preference-revealing information in a supply chain with two competing manufacturers supplying two quality-differentiated products to a common retailer. Consumers have complete knowledge of product quality but are uncertain about how the quality will match their own preferences. We study who should provide preference-revealing information to help consumers understand their own quality preferences, and how such information disclosure affects horizontal and vertical competitions in the supply chain. We show that the manufacturer with a higher unit quality production cost has a higher incentive to provide such information, and we show how each supply chain member sets its information policy. The role of information releaser will switch from an upstream member (a manufacturer) to the downstream member (the retailer) as the market information level (the consumer’s degree of informativeness before disclosure) increases. Information disclosure softens both horizontal and vertical competitions in the supply chain. We extend our model to examine the case in which the two manufacturers make simultaneous decisions, and the case when a supply chain member incurs a cost for implementing information disclosure.