Retailers' endogenous sequencing game and information acquisition game in the presence of information leakage

Abstract

AbstractTimely and accurate order placement is critical to the success of all partners in a supply chain. This study explores the equilibrium states of the endogenous timing of order placement that could lead to information leakage in the supply chain. Competition and information asymmetry in the business environment adversely affect firms across industries, often leading to suboptimal outcomes. We examine the dynamics of two competing retailers and the impact of information leakage due to asymmetric information on their decision‐making strategies. Specifically, we analyze a supply chain with one supplier and two competing retailers under demand uncertainty in which the retailers' decisions on the timing of order placement and acquisition of demand information are endogenous. We characterize the retailers' choices in equilibrium and analyze the impact of these choices on their order quantities and profits. In reality, owing to outsourcing to overseas suppliers and long lead times, suppliers prefer early orders from their downstream partners. We find that a retailer that decides to invest to obtain demand information would end up ordering earlier than its competing firm even if information asymmetry and leakage exist. We also show that information is more valuable and beneficial to the retailer that has the first‐mover advantage.