Inducing information transparency: The roles of gray market and dual-channel

Abstract

Information asymmetry is particularly common in the supply chain framework. As we know, the downstream retailer usually knows more about the market demand information than the upstream manufacturer because of her proximity to consumers. This paper considers a supply chain that a manufacturer sells products to consumers via a retailer in a local market. Besides, the manufacturer has an option to establish a direct online channel in the overseas market, in which the retailer can sell products as a gray marketer to earn an extra profit. Both markets’ demand information is transparent to the retailer but asymmetric to the manufacturer. There are two side an opposite effects of information sharing on the retailer. The positive effect is that when she withholds demand information she can possess an information advantage. However, the negative effect is that when the retailer shares her private demand information, especially when the manufacturer enters the overseas market, the retailer’s profit may be negatively affected because of the competition. Therefore, whether the retailer has motivation to share her private demand information with the manufacturer is an intriguing yet unanswered question. We first characterize the tradeoff in three supply chain structures, Local Market, Dual Market and Gray Market. Then, we obtain the equilibrium results of each case and find that a co-opetition strategy may arise because of competition when considering gray market and dual-channel. Finally, we uncover the underlying reasons and develop valuable insights.