Information sharing is often said to improve the profitability and efficiency of supply chains. However, it is not necessarily the case that information sharing always improves the profit of every party in the supply chain, or even the profit of the supply chain as a whole. This thesis studies vertical information sharing in a two-echelon supply chain with one manufacturer and two competing retailers. Two types of channel interaction are modeled with different game rules, manufacturer Stackelberg or vertical Nash....[ Read more ]

Information sharing is often said to improve the profitability and efficiency of supply chains. However, it is not necessarily the case that information sharing always improves the profit of every party in the supply chain, or even the profit of the supply chain as a whole. This thesis studies vertical information sharing in a two-echelon supply chain with one manufacturer and two competing retailers. Two types of channel interaction are modeled with different game rules, manufacturer Stackelberg or vertical Nash.

It is found that the equilibria obtained by previous work on vertical information sharing with manufacturer Stackelberg have a subtle error, which this thesis rectifies. In obtaining the correct equilibrium, two different methods are proposed, with or without leakage effect. Without leakage effect, the manufacturer is always better off by acquiring demand information from more retailers, and each retailer is worse off to disclose his demand information as the first mover but could be better off as the second mover. Two equilibria exist: both retailers sharing informat ion or none sharing; the latter Pareto always dominates the former. With leakage effect, it may occur that the manufacturer loses and the retailers gain from information sharing. The supply chain always benefits from information sharing and the retailers may want to pay the manufacturer for receiving their information.

Information sharing in a vertical Nash setting is also examined. The manufacturer is always better off by acquiring more information from retailers and the retailers are always worse off by disclosing their private signals; no information sharing is the unique equilibrium.

One counterintuitive finding is that information trading can be achieved even when it reduces the total supply chain profit in the case of vertical Nash or manufacturer Stackelberg without leakage effect.

We start by assuming that the manufacturer is make-to-order and generalize the results to the make-to-stock situation on the assumption that the manufacturer always meets the downstream orders.