Two‐period information‐sharing and quality decision in a supply chain under static and dynamic wholesale pricing strategies

Abstract

AbstractWe consider a one‐to‐one supply chain consisting of a manufacturer and a retailer and study the retailer's two‐period information‐sharing decision problem. We develop a game‐theoretic model wherein the manufacturer produces a product at a certain level of quality to the retailer at a static wholesale price or at dynamic wholesale prices over two periods. The retailer determines whether to share the market demand information with the manufacturer. Conventional wisdom suggests that the retailer prefers not to share the information because of the double marginalization effect. Under the two‐period setting, we show that the retailer may disclose information to the manufacturer voluntarily. Specifically, if the manufacturer adopts the static wholesale pricing strategy, sharing (no) information over two periods is beneficial for the retailer when the quality cost coefficient is low (high). If the manufacturer implements the dynamic wholesale pricing strategy, it is beneficial for the retailer to share information only in the first period when the quality cost coefficient is moderate. When the quality cost coefficient is sufficiently low (high), the retailer prefers to share (no) information for both periods. Our result suggests that the manufacturer always benefits from the information‐sharing, that is, a “win‐win” outcome for the retailer and manufacturer may be achieved under certain conditions, which stands in sharp contrast to the literature on information‐sharing.