The impact of manufacturer’s encroachment and nonlinear production cost on retailer’s information sharing decisions

Abstract

Prior literature has shown that retailer ex ante sharing imperfect demand information hurts the retailer, benefits the manufacturer and reduces the total profit of the supply chain. This paper extends the investigation of information sharing to the context where the manufacturer may have encroachment capability and may face production diseconomy or economy. We find that, when not considering the manufacturer’s production cost, manufacturer encroachment encourages the retailer to share demand information with manufacturer and improves the supply chain performance. As information sharing in this scenario does not hurt the retailer but do benefit the manufacturer, thus making the supply chain better off. In addition, the manufacturer may have an incentive to encourage the retailer to improve the demand forecast accuracy. When the manufacturer encroaches and faces production diseconomy, information sharing benefits the retailer and it benefits the manufacturer and the supply chain on condition that production diseconomy is relatively small. When either the demand becomes more variable or the demand signal of the retailer becomes more accurate, the retailer benefits more from information sharing. When the manufacturer encroaches and faces production economy, information sharing hurts the retailer. And it benefits the manufacturer and the supply chain if the production economy is relatively small. Furthermore, for either production diseconomy or economy, information sharing improves the manufacturer profit and the supply chain performance if and only if the demand signal is very accurate and demand variable is relatively large.