We consider the problem of how firms design supply contract and share information for supply chains under horizontal competition and asymmetric information. The problem is studied using a model of two supply chains, each consists of one manufacturer and one retailer. Each retailer will observe a private demand signal about the market and decide whether to share it with the manufacturer of his own chain. A multi-stage game is formulated to analyze how different firms make information sharing, contracting and retail quantity (or price) decisions. For a perfect demand signal model with Cournot competition, we show that the incentives of information sharing are positive under quantity-based contract menus but become negative under linear price contracts. We also show that a lower investment...[ Read more ]

We consider the problem of how firms design supply contract and share information for supply chains under horizontal competition and asymmetric information. The problem is studied using a model of two supply chains, each consists of one manufacturer and one retailer. Each retailer will observe a private demand signal about the market and decide whether to share it with the manufacturer of his own chain. A multi-stage game is formulated to analyze how different firms make information sharing, contracting and retail quantity (or price) decisions. For a perfect demand signal model with Cournot competition, we show that the incentives of information sharing are positive under quantity-based contract menus but become negative under linear price contracts. We also show that a lower investment cost for information sharing (or a higher information sharing capability) is a competitive advantage, which is more significant when the competing supply chain that has a higher investment cost is induced not to invest in information sharing and is made less aggressive due to the use of contract menus. For an imperfect demand signal model with revenue sharing contracts, we show that the incentives for information sharing are always negative under Cournot competition but can be positive or negative under Bertrand competition. For the latter case, it is more likely for a supply chain to have positive incentives for information sharing when the signal precision (or forecasting capability) of either supply chain is higher, the products are more similar, the manufacturer can get more revenue allocation or the competing manufacturer gets less revenue allocation.