The interplay between quality improvement and information acquisition in an E-commerce supply chain

This study investigates an e-commerce supply chain comprising a supplier and an online retailer, wherein the supplier determines the quality improvement of products and the online retailer decides whether or not to acquire information on consumer preference. Consumer preference is ex-ante unknown to both the supplier and online retailer but can be resolved by the online retailer’s information acquisition behavior. We consider two widely adopted information acquisition strategies, namely, the committed acquisition strategy and contingent acquisition strategy, which differ in whether the online retailer’s information acquisition decision is made prior to or after the supplier’s quality improvement decision. We find that, under either strategy, the online retailer acquires information only when the cost of information acquisition is relatively small. Moreover, compared with the contingent one, the committed acquisition scheme boosts the online retailer’s motivation to gain information. Additionally, by comparing firms’ equilibrium profits under these two acquisition strategies, we uncover that the supplier always prefers the committed acquisition scheme. However, the online retailer’s preference toward these two information acquisition strategies is not unidirectional, that is, the online retailer prefers either the committed or the contingent strategy. Specifically, the online retailer is indifferent between these two acquisition strategies when the acquisition cost is either sufficiently low or high; otherwise, when the cost of information acquisition is moderate, the online retailer will shift her strategy from the contingent strategy to the committed strategy as the acquisition cost increases.