Inducing Downstream Information Sharing via Manufacturer Information Acquisition and Retailer Subsidy

ABSTRACT We investigate a manufacturer's information acquisition and subsidization strategies in a supply chain featuring two competing retailers who sell substitutable products and have private demand information. The manufacturer can decide whether to acquire demand information at a cost and further decide whether to offer subsidies simultaneously to retailers to induce their sharing of private demand information. We demonstrate that subsidizing retailers is always in the manufacturer's interest, but direct information acquisition is profitable only if its cost is low. Information acquisition helps the manufacturer gain superior demand information and leverages the retailer's information advantage, thereby reducing the expenditure of subsidization. Compared with the simultaneous subsidy provision scheme, we further investigate the sequential and partial subsidy schemes and find that the simultaneous and sequential subsidy schemes result in an identical equilibrium outcome that dominates the equilibrium outcome in the partial subsidy scheme when three subsidy provision schemes are all feasible. Although the outcomes are the same, we show that the simultaneous subsidy scheme can be applied in a broader range than the sequential subsidy scheme can. Otherwise, if complete information sharing cannot be achieved, the partial subsidy scheme may be the optimal choice for the manufacturer.