Should firms conceal information when dealing with common suppliers?

Jain, A and Sohoni, M G (2014) Should firms conceal information when dealing with common suppliers? Naval Research Logistics (NRL), 62 (1). pp. 1-15.

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Abstract

Abstract A firm making quantity decision under uncertainty loses profit if its private information is leaked to competitors. Outsourcing increases this risk as a third party supplier may leak information for its own benefit. The firm may choose to conceal information from the competitors by entering in a confidentiality agreement with the supplier. This, however, diminishes the firm's ability to dampen competition by signaling a higher quantity commitment. We examine this trade-off in a stylized supply chain in which two firms, endowed with private demand information, order sequentially from a common supplier, and engage in differentiated quantity competition. In our model, the supplier can set different wholesale prices for firms, and the second-mover firm could be better informed. Contrary to what is expected, information concealment is not always beneficial to the first mover. We characterize conditions under which the first mover firm will not prefer concealing information. We show that this depends on the relative informativeness of the second mover and is moderated by competition intensity. We examine the supplier's incentive in participating in information concealment, and develop a contract that enables it for wider set of parameter values. We extend our analysis to examine firms' incentive to improve information. © 2014 Wiley Periodicals, Inc. 62:1–15, 2015

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Jain, AUNSPECIFIED
Sohoni, M Ghttp://orcid.org/0000-0003-0510-7109
Item Type: Article
Uncontrolled Keywords: supply chain competition, information sharing, games with asymmetric information
Subjects: Business and Management
Operations Management
Depositing User: Veeramani R
Date Deposited: 10 Oct 2018 15:52
Last Modified: 11 Oct 2018 08:47
URI: http://eprints.exchange.isb.edu/id/eprint/608
Publisher URL: https://doi.org/10.1002/nav.21609
Publisher OA policy: http://www.sherpa.ac.uk/romeo/issn/1520-6750/
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