To Share or Not to Share: Demand Forecast Sharing in a Distribution Channel

Baojun Jiang (), Lin Tian (), Yifan Xu () and Fuqiang Zhang ()
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Baojun Jiang: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130
Lin Tian: School of International Business Administration, Shanghai University of Finance and Economics, 200433 Shanghai, China
Yifan Xu: School of Management, Fudan University, 200433 Shanghai, China
Fuqiang Zhang: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130

Marketing Science, 2016, vol. 35, issue 5, 800-809

Abstract: This paper studies information sharing in a distribution channel where the manufacturer possesses better demand-forecast information than the downstream retailer. We examine three information-sharing formats: no information sharing (i.e., the manufacturer ex ante commits to not sharing its forecast), voluntary information sharing (i.e., the manufacturer makes the sharing decision ex post after receiving the forecast), and mandatory information sharing (i.e., the manufacturer is mandated to share its forecast). We characterize the equilibrium outcomes under the three sharing formats and investigate the firms’ preferences regarding these formats. It is shown that when the retailer is risk-neutral, both firms are indifferent between voluntary and mandatory sharing. Among the three formats, ex ante, the retailer prefers the no-sharing format whereas the manufacturer prefers the mandatory-sharing format. In addition, we find that a more accurate forecast benefits both firms under voluntary- and mandatory-sharing formats, but may hurt both firms under the no-sharing format. Finally, we show that risk aversion plays a critical role in the firms’ sharing decisions and the impact of forecast accuracy. Specifically, when the retailer is risk-averse, the manufacturer may prefer the no-sharing format over the voluntary-sharing format, and improving forecast accuracy may hurt both firms even under voluntary sharing.

Keywords: information sharing; signaling; forecast accuracy; risk aversion; distribution channel (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (74)

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