Firms' diverse market beliefs can facilitate information sharing and improve profit performance

Abstract

AbstractA supplier sells a product through a retailer to the market with uncertain demand. The retailer has a signal useful for updating the forecast of market uncertainty, while the supplier can offer a payment to acquire the retailer's signal, termed information sharing. Due to differential means of market access and methods of data analysis, the supplier and the retailer hold diverse beliefs about market conditions. A firm is more confident about market conditions as it perceives the market to be less uncertain. The supplier can be either aware or unaware of the retailer's market belief. In the former case, the supplier correctly predicts the retailer's belief‐based response and makes decision accordingly. In the latter case, the supplier infers the retailer's market belief from the retailer's decision about signal disclosure. We unveil the concrete circumstances where the supplier gains access to the retailer's signal, which would not occur when they held the same accurate market belief. Moreover, with the actual profit performance as the measure, the firms can benefit from holding diverse market beliefs, albeit not simultaneously. The supplier's knowledge of the retailer's market belief can facilitate information sharing but can have detrimental effects on the firms' actual profit performance. Given the opportunity, the retailer may report a market belief that is less confident than its real market belief in communicating with the supplier, which can deter information sharing but has intricate effects on the firms' profits.