Incentive of retailer information sharing on manufacturer volume flexibility choice

This paper considers a supply chain where a manufacturer builds the capacity and sets the wholesale price, and a retailer sets retail price and holds the advantage of demand information. There are two means to solve supply-demand mismatch: the retailer makes the forecast information-sharing strategy, and the manufacturer chooses volume flexibility that can postpone production after demand is observed. We focus on the retailer’s incentive for sharing private forecast information which is made to affect the follow-up action of manufacturer’s volume flexibility choice. A multi-stage game is formulated and the equilibria are obtained. It is shown that if the market fluctuation is relatively large, the manufacturer is more willing to choose volume flexibility under information sharing than under no information sharing; otherwise, the manufacturer is less willing to choose volume flexibility under information sharing than under no information sharing. Further, when the investment cost is relatively large and market fluctuation is relatively small, there may arise a prisoner’s dilemma, such that neither means (information sharing or volume flexibility) is taken, but higher profits are attained through implementing the two means. Last, if information-sharing commitment is made after volume flexibility choice, the retailer never shares the forecast information when the manufacturer commits to choosing volume flexibility, which enlarges the system parameter region for the prisoner’s dilemma occurring. Thus, it is optimal for both parties with the information-sharing decision made before volume flexibility choice.