Transparency of Information Acquisition in a Supply Chain

In a supply chain serving a market with random demand, a downstream retailer faces uncertainty in the availability of demand information. He may conduct market research but may not acquire useful insight into customer preferences or potential demand. Or, he may possess a large amount of transaction data but fail to translate the data into information that would provide guidance to pricing or stocking level decisions. In other words, whether the retailer will be informed of the market demand, i.e, whether his information acquisition will be successful, can be uncertain. When his information acquisition has uncertain outcome, should the retailer keep the outcome a secret, or should he make it transparent to the upstream manufacturer by conveying to the latter whether or not he has successfully acquired useful market information? We find that, when facing a powerful manufacturer, such as one who can dominate the terms of trade by offering a quantity bundle contract menu, the retailer may become less disadvantageous, and gain more from his information (i.e., earn a higher information rent), by making his information acquisition process transparent to the manufacturer. This requires, of course, that the retailer is able to credibly convey to the manufacturer that his information acquisition has succeeded or has failed.