The Incentive Mechanism For Truth-Telling in Information Sharing

Abstract

This paper presents a three-stages game model between one manufacture and Yl retailers which engaged in Cournot competition. If the retailers share their forecasts truthfully, the manufacturer always benefits; however, the profits of the retailers always worse off by disclosing their demand information to the manufacturer. However, we show that the retailers have an incentive to understate their forecasts while sharing information. The information distortion phenomenon is the direct result of each party exploiting its private information to appropriate the gains from information sharing. If the manufacturer and the retailers can agree on their relative profit margins or profits prior to information sharing, the retailers will share their information truthfully and both parties may benefit from information sharing.