Information is crucial to the supply chain because it provides the foundation for managerial decisions. Inventory decisions often depend on private forecast shared by retailers. Facing uncertain demand, suppliers tend to rely on nonverifiable retailers’ reports known as “cheap talk”....

This paper investigates the capacity investment decision of a supplier who solicits private forecast information from a manufacturer. To ensure abundant supply, the manufacturer has an incentive to inflate her forecast in a costless, non-binding, and non-verifiable type of communication known as...