Contracting and Information Sharing in Supply Chains with a Common Retailer & Competing Manufacturers
September 11, 2023 9:00 AM Singapore
I study how vertical information exchange occurs in supply chains when two competing manufacturers sell via a common retailer. In particular I look at a retailer who is privately informed about its market demand and investigate two practices for information exchange, namely (1) information exchange via manufacturer determined menus of payment-quantity contracts (screening contracts that incentivize the retailer to share information), or (2) via retailer determined information sharing agreement (in which the retailer sets a fee for sharing information). I use a three stage game to investigate which practices of information exchange emerge. In stage 1 of the game the retailer sets the information sharing fee, in stage 2 the manufacturers decide whether to obtain information via information sharing agreement or via screening contracts and in stage 3 the manufacturers simultaneously determine the contracts they will offer to the retailer. This study reveals some interesting results depending on the extent of competition between supply chains and the ex-ante uncertainty over the retailer’s demand information. (1) I find that manufacturers and even supply chains can be better off if they use screening contracts for information exchange, even if the retailer offers that information for free. (2) I find that manufacturers can end up in a prisoner’s dilemma wherein they opt for an information sharing agreement even though they are better off obtaining information via screening contracts. (3) I find that both information sharing and screening contracts can emerge in equilibrium when the retailer optimally sets its information sharing fee. Moreover, the resulting equilibria can be inefficient for both manufacturers and the supply chain, i.e., manufacturers and the supply chain can be better off with screening contracts when they actually use information sharing, and vice-versa. All these findings are qualitatively different from existing operations literature on vertical information sharing in supply chains, mainly because no one has investigated vertical information sharing in a common agency setup. Managerially, these findings provide guidance on when contracts or information sharing agreements should be used in practice, and how the levels of competition and uncertainty impact which practice is used for exchanging information.
About the Speaker
Aadhaar Chaturvedi is a Senior Lecturer and the area lead of Decisions and Operations Management at The University of Auckland Business School (UABS). He applies analytical tools to study supply chain problems related to sourcing and to online platforms. His work has been regularly published in the leading journals of the field (MS, M&SOM, POM) and has attracted above USD 250K of research funding. He is regularly invited to give lectures at international (FT-25) business schools and has taught several courses to MBAs and Executives. He is the director of the center for supply chain management (CSCM) at UABS and has consulted with several firms across Europe, Asia and Oceania.
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