The Benefits of Downstream Information Acquisition

This study investigates the effects of turning terabytes of raw retail data into managerial insights (i.e., downstream information acquisition) in a strategic channel setting. Two effects of information acquisition are identified: the effciency effect that improves retail pricing decision making in an uncertain environment, and the strategic effect that the retailer voluntarily discloses the acquired private information to influence the upstream manufacturer's wholesale pricing behavior. It is shown that the effciency effect benefits the retailer without affecting the manufacturer, whereas the strategic effect works to the detriment of the retailer while to the advantage of the manufacturer. Nevertheless, unobservable information acquisition can mitigate the retailer's loss and the manufacturer's benefit from the strategic effect of information disclosure. Moreover, an increasing expected information acquisition cost may benefit the retailer, when the expected information acquisition cost is low and information acquisition is unobservable to the manufacturer. The implications of the paper can shed light on how firms interact in a channel where the downstream market is data intensive while information gleaning is costly.