Information sale and contract selection under downstream competition

Consider a supply chain with a supplier selling to downstream competing manufacturers who purchase demand information from a third-party information provider. We show that the equilibrium number of manufacturers who purchase the information service depends only on the downstream competition intensity. We further investigate two contract schemes: wholesale price and index-based price. We find that the latter benefits the supplier but causes the information accuracy and service price to depreciate, thereby reducing the information provider’s profit. Finally, we provide guidance to the supplier on when it should rely on a third-party information provider instead of offering information service in house.