Essays on the value of information sharing in decentralized supply chains [electronic resource]

This dissertation is comprised of three essays that explore various research questions related to incentives for information sharing in decentralized supply chains. The first essay, in chapter 2, introduces a new motivation for information sharing in decentralized supply chains - as a mechanism to achieve truthful information sharing and reduce signaling costs. In this essay I study a two echelon supply chain with one manufacturer selling a homogenous product to n price setting competing retailers, and each retailer is endowed with private information about the potential market demand. I first examine the incentives of the retailers to share information when the shared information is verifiable, and I demonstrate that the retailers have an incentive to share information with each other but conceal this information from the manufacturer. However, when the retailers share non-verifiable information, I show that by means of pure communication (cheap talk) no information can be exchanged. In order to overcome the problem of sharing non-verifiable information and induce the retailers to share information truthfully as their strategic choice, two signaling games are analyzed. In the first one, information is shared only between the retailers, and in the second, information is shared in a credible manner with the manufacturer as well. The emphasis of this paper is to understand the effect of exposing the manufacturer to the shared information on the ability of the retailers to reach an information sharing equilibrium. I show that under some conditions, when the retailers share non-verifiable information, they prefer to share this information with the manufacturer. As opposed to conventional wisdom, I also demonstrate that the supply chain can be better-off under settings of asymmetric information when the retailers choose to share their private information with the manufacturer. The second essay, in chapter 3, explores the value of observing demand information in a repeated procurement model between a manufacturer and his supplier. In many supply chain relationships that last over multiple periods, information about hidden properties of the supply chain partners can be revealed during the course of the relationship. This essay examines how the availability of such information affects the contracting scheme between a supplier and his manufacturer in a relationship that lasts over two selling seasons. At the beginning of the first selling season the manufacturer observes private information about the demand distribution, whereas the supplier who is less familiar with the market is endowed only with the prior distribution of the market condition. When the supplier cannot observe the demand realization during the first selling period, under many circumstances he offers a contract that induces the manufacturer to reveal the market condition in the first selling season. In contrast with the case in which no information is available to the supplier, the opportunity to observe demand realization during the first selling season can result in the supplier offering the manufacturer a contract that does not induce the manufacturer to reveal his private information during the first selling season and then offer a second period contract which is based on the first selling season demand realization. I show that when the supplier chooses to offer such a contract the manufacturer becomes worse off, and it has an ambiguous effect on the performance of the supply chain. Although sharing demand information with the supplier makes the manufacturer worse off, the manufacturer is always willing to share such information with his supplier. The third essay, in chapter 4, examines the incentives of retailers, looking to establish a cartel, to share information with their mutual manufacturer. Many researchers have emphasized the importance of communication to establish a cartel. Sharing information among the cartel members allows the cartel to coordinate on the optimal pricing scheme and monitor for possible deviations from the cartel strategy. Anti-trust authorities view information sharing practices as a possible signal for collusion, and economists asked whether information sharing between competing firms should be banned. In this essay I demonstrate how, even without direct information sharing between the cartel members, the retailers are able to exchange information about the market condition by sharing information with their mutual manufacturer. When the retailers share information with their manufacturer, the manufacturer uses the shared information to set the wholesale price to match the market condition. The retailers use the posted wholesale price to solve their coordination problem and set the monopoly price. When the manufacturer faces the decision whether to receive information from the retailers he weighs the trade-off between receiving information about the market, which helps him to set the wholesale price, and assisting the retailers to establish a cartel, which limits his sold quantity. When the retailers need to make this decision they weigh the fact that the posted wholesale price can solve their coordination problems against providing the manufacturer with better information. I demonstrate that there are cases in which both the retailers and the manufacturer are better-off sharing information, and that vertical information sharing can facilitate horizontal tacit collusion.

Advisor: Whang Seungjin primary advisor. Thesis advisor
Mendelson Haim advisor. Thesis advisor
Tunca Tunay I.