Demand information acquisition strategy in a dual channel supply chain

Abstract

AbstractThis article examines the information acquisition strategy of a dual‐channel supply chain, in which a manufacturer sells a product both through a retailer and through its own direct channel. Either the manufacturer or the retailer can acquire demand information from a third‐party marketing research company. The manufacturer first decides whether or not to acquire such information, and then the retailer decides whether or not to acquire information. This setup implies a signaling game (either the manufacturer or the retailer may have private demand information) with an endogenous information structure. We identify conditions under which neither of the firms will acquire demand information, even when the cost of implementation is negligible. We also show that information acquisition can have a negative impact on the retailer, the supply chain, customers, and society. The manufacturer who acquires information always prefers to share information with the retailer, which benefits the retailer. The retailer who acquires information, however, may not want to share information with the manufacturer. The managerial insight of our paper is that firms that have more accurate demand data must develop strategies for the appropriate use of that information, both in their own planning and within the context of their dual‐channel supply chain.