Groupe d’études et de recherche en analyse des décisions

With or Without Information Sharing: Competition and Credibility under Information Asymmetry

Mehmet Gumus Professeur, Faculté de gestion Desautels, Université McGill, Canada

Information sharing among trading partners lies at the heart of many collaborative SCM efforts, and has been praised in both academic and practitioner circles for its critical role in increasing demand visibility for supply chains that are exposed to high supply-demand mismatch risk. That said, there are still some concerns about the information sharing in the same circles: First one is related to its credibility, and second one is about the fear that it may turn into a competitive disadvantage and induce suppliers to increase their price offerings. In this paper, we explore the validity of these concerns under a supply chain with competitive upstream structure, specifically regarding (i) whether, and, if yes, when credible information sharing is sustainable, and (ii) how it impacts the degree of upstream competition. To address these issues, we develop a supply chain model with two competing heterogeneous suppliers at the upstream level and one buyer at the downstream level. Demand forecast is known only to the buyer, whereas supply uncertainty is known only to the supplier. In the first stage, the buyer decides on how much in total he will commit to procure from the suppliers. Then, in the second stage, suppliers offer their contracts and, in the third stage, buyer decides on the final order allocation. Finally, in the last stage, demand and supply uncertainties realize, and buyer clears the supply-demand mismatch, if needed. We fully characterize equilibrium decisions and profits under symmetric and asymmetric information scenarios, and explore when buyer can credibly share demand forecast information with the suppliers and [when] he cannot, and the impact of the credible information sharing on equilibrium decisions, and profits. Our main findings from this analysis are that buyer can use commitment contract as a credible signal for information sharing as long as it is not too costly for him and contrary to above concerns, equilibrium prices that emerge between competing suppliers indeed increase if buyer cannot share forecast information credibly with the upstream partners.