Strategic Demand Information Sharing Between Competitors

We study the incentives of two competing firms — the building block of any supply chain with downstream competition — to exchange private demand signals when demand is uncertain. The novelty and fundamental contribution of our paper lies in its consideration of ex–post or strategic information sharing, where the decision to share or to conceal a private demand signal is made after observing the demand signal. Using a modeling framework with binary demand and binary demand signals, we demonstrate, for the first time in the literature, the existence of a pooling information sharing equilibrium: under certain conditions, competing firms want to share both low– and high–demand signals after receiving them. In addition, we also study the ex–ante version of the model mainly to facilitate comparison with its ex–post counterpart and to benchmark against existing results in the literature. Our analysis of the ex–ante case provides a theoretical proof for as well as an extension of related findings in the existing literature. We also show that not all ex–ante agreements to share information can survive ex–post, and that competitors have an incentive to make sure that any information exchanged is verifiable. As such, our results shed new light on a fundamental piece of the study of information flows in supply chains.