The impact of ex-post information sharing on a two-echelon supply chain with horizontal competition and capacity constraint

We consider a two-echelon supply chain consisting of one capacity-constrained supplier and two Cournot-competitive retailers. The incumbent retailer has private demand information and takes strategic information sharing to maximize its expected profit. The supplier carries out capacity allocation strategy when the capacity cannot satisfy both retailers’ total order quantity. We model three scenarios of information sharing: (1) no member is informed; (2) only the entrant retailer is informed; and (3) both the supplier and entrant retailer are informed. We characterize the conditions under which information sharing may benefit or hurt the supply chain and different members and meaningful information sharing is achieved via “cheap talk”. Compared with no information sharing, when only the entrant retailer is informed, the incumbent retailer always has incentive to deflate its demand information to make the entrant retailer order less. Both retailers cannot achieve meaningful information sharing. When the supplier and entrant retailer both are informed, the incumbent retailer faces a trade-off between the desire to receive more products and the fear of intense competition and high wholesale price. The meaningful information sharing is achieved and all members are benefitted. The numerical examples verify theoretical results.