Sharing Demand Information with Retailer Under Upstream Competition

We analyze information sharing collaboration between two manufacturers and a retailer under upstream competition. The manufacturers produce partially substitutable products, which are stocked by the retailer who sells them in the market characterized by random demand. The manufacturers are privately informed about uncertain demand, and decide on whether to share this information with the retailer. We show that by not sharing information a manufacturer ends up distorting its wholesale price upwards to signal its private information to the retailer, and under upstream competition this distortion is propagated to the competing manufacturer. Thus, while a manufacturer's decision to not share information may benefit or hurt its own profit, this always benefits the competing manufacturer. Under low intensity of competition, signaling driven distortions exacerbate double marginalization and hurt all parties, whereas under more intense competition, these distortions help manufacturers o↵set downward pressure on wholesale prices. Thus, in equilibrium similarly informed manufacturers share information in the former case, but not in the latter case. And when manufacturers di↵er in their information accuracies, only the better-informed manufacturer shares information. The retailer always benefits from both manufacturers sharing information, and its benefits are larger when the better-informed manufacturer shares information. We extend our analysis to the case in which information sharing involves retailer sharing its private information, and the case in which manufacturers make information sharing decisions sequentially. Finally, we explore manufacturers' incentive to acquire information given equilibrium information sharing decisions