How reverse information sharing supports pricing and sales effort decisions: Signaling game-based incentive mechanism design

The importance of information sharing in a supply chain (SC) is well known. However, how it could be used as an instrument to affect decisions on pricing and sales effort remains uncertain. Based on the investigation of apparel industry, this study formulates a signaling game and uses it to examine the impact of information sharing on operational decisions of a SC that involves a supplier who possesses private demand information and a retailer who promotes sales, where two information-sharing strategies are considered: Mandatory information-sharing (MS) and no information-sharing (NS). Under MS strategy, the supplier actively shares demand information with the retailer. The traditional Stackelberg game is studied. Backward induction is used to obtain the equilibrium solutions and ex ante expected profits. Under NS strategy, the dynamic game evolves to the signaling game. The supplier’s mimicking mechanism is investigated considering the conflicting impacts of the retail price and sales effort. Furthermore, we examine the separating equilibrium and pooling equilibrium. The intuitive criterion is used to refine the multiple equilibria. At last, the SC members’ preferences on information sharing strategies are analyzed.