Information sharing and the impact of shutdown policy in a supply chain with market disruption risk in the social media era

Abstract

This paper investigates the information sharing issue in a simple supply chain with one manufacturer and one retailer. The market demand might be subject to disruption, but the retailer can get access to some signals from social media platforms to better forecast the market state (regular or disrupted) even though the signals might be not fully reliable. Different from the traditional information sharing literature, we incorporate the shutdown policy into our model. We first characterize the equilibrium outcomes under both with- and without-information sharing cases and then examine the players’ preferences over information sharing or not. It is shown that when the level of information reliability is relatively low, the manufacturer prefers the information sharing cases, whereas the retailer prefers the no-sharing case, and information sharing does harm to the whole channel. In addition, our results show that as the level of information reliability increases, the manufacturer benefits more but the retailer and the whole channel lose more from information sharing. Contrary to the conventional wisdom, when the level of information reliability falls into an intermediary interval, the retailer will have an incentive to share information, and information sharing will benefit the manufacturer and the whole supply chain. However, the benefits from information sharing decrease as the level of information reliability increases. When the level of information reliability is sufficiently high, both firms are indifferent between the information sharing and no-sharing cases. Additionally, the incorporation of the shutdown policy has important implications for the information sharing issue, and thus, the policy should not be overlooked.