Holding diverse market beliefs by firms: Information flow, profit performances, and channel structure

Abstract

We investigate the impact of diverse market beliefs held by supply chain firms on information flow and channel efficiency. In presentative settings, suppliers sell substitutable products through retailers to a market with uncertain demand and market competition is in quantity. Structure B comprises a monopolistic supplier and a monopolistic retailer. With respect to structure B, structure U includes competition between suppliers, structure D includes competition between retailers, while structure SC includes competition between two supply chains. A retailer has access to a demand signal useful for updating the forecast of market uncertainty. A supplier has no signal access but can offer a payment to a retailer, who decides whether to accept the payment and disclose signal to the supplier, termed information sharing. Suppliers and retailers hold diverse beliefs about market conditions. Knowing each other's market beliefs influences firms’ ex-post operations policies and ex-ante profit perception. We demonstrate that holding diverse beliefs about market uncertainty by firms facilitates information sharing except in the presence of only retailer competition, in which case it deters information sharing. Exchanging market beliefs about market uncertainty among firms strengthens their incentive to engage in information sharing, but it exerts mixed effects on their actual profits. By comparison, suppliers and retailers are more likely to benefit from exchanging market beliefs about market size, although it is inconsequential to information sharing. Moreover, we pinpoint the impacts of holding diverse market beliefs by firms on their relative performances across channel structures.