Information sharing in the presence of retailer's risk aversion and altruism

Abstract

AbstractIn highly uncertain times, firms are increasingly exhibiting risk aversion to uncertain demand and altruism to supply chain partners to reduce risk and maintain stability. To deal with high demand fluctuations, numerous firms are adopting information‐sharing strategies. We study how a retailer's risk aversion and altruism affect her demand information‐sharing decision by constructing game‐theoretic models. We first show that information sharing makes double marginalization (DM) stronger and hurts the retailer and generates an information‐sharing DM effect. The retailer's risk aversion strengthens this effect, while her altruism weakens the effect. Meanwhile, information sharing generates an uncertainty reduction effect on the risk‐averse retailer by reducing volatility and an altruism improvement effect on the altruistic retailer by increasing the manufacturer's profit. Whether information sharing benefits the retailer depends on her level of risk aversion and altruism. The retailer prefers voluntary sharing when both her risk aversion and altruism are high.