Retailer information sharing under endogenous channel structure with investment spillovers

Abstract

This paper studies information sharing under an endogenous distribution channel structure, where the retailer has superior demand information over the manufacturer, who can conduct demand-enhancement investment that will spill over to the retailer. Though traditional wisdom suggests that manufacturer encroachment and information sharing will hurt the retailer, we show that the retailer may encourage manufacturer encroachment in the endogenous channel structure via information sharing under the premise that the investment is efficient enough. Specifically, the retailer's incentive to share information may be higher in the endogenous channel structure than that in the exogenous channel structure. We also characterize the manufacturer's equilibrium encroachment decision, which is contingent on the retailer's information sharing choice if the encroachment cost lies in the intermediate range. The manufacturer encroaches under information sharing and forgoes encroachment under non-sharing. Moreover, the retailer's preference for manufacturer encroachment is higher under no information sharing than that under information sharing. The manufacturer, consumers and the total social welfare all become better off with information sharing, given that the retailer has the incentive to do so.