Downstream Information Leaking and Information Sharing Between Partially Informed Retailers

Retailers benefit under certain conditions from horizontal information sharing, sharing information with competing retailers. However, these benefits could be hindered by the mediation of the manufacturer. Information leaking occurs when the manufacturer filters information from one retailer to the other. We focus on analyzing the impact of horizontal information sharing and information leaking on the profits of the manufacturer and retailers. We develop an analytical model with partial and asymmetric demand signals of customers’ valuation. Three scenarios are revised: no information sharing and no information leaking, information sharing, and information leaking. The originality of this study is the use of a demand process with distribution uncertainty, which imitates the information conditions of retailers who join a new market or start selling new products. These retailers own partial information but cannot determine if they are in a better information position than the other retailer. The results indicate that horizontal information sharing increases profits for the retailer with a higher demand signal, but it does not benefit the retailer with a lower demand signal. Additionally, retailers encounter their least preferred scenario if they do not agree to share information horizontally because the manufacturer will always respond by leaking information from the retailer with a higher demand signal to the other retailer. Managers of competing firms facing ambiguity about their demand information position should share information to benefit from a better demand estimation, or at least, prevent the manufacturer to use information leaking to his private benefit.