Information sharing in a competitive supply chain with capacity constraint

This paper studies the incentives for vertical demand information sharing in a two-echelon supply chain formed by many downstream retailers and one upstream manufacturer with a limited production capacity. The retailers are engaged in a Cournot competition, and endowed with some private information about the demand. The total order of all the retailers may exceed the manufacturer’s capacity, and in that case, an allocation strategy is required. We show that a discriminated allocation strategy will encourage the retailers to share their demand information. We also find the condition under which full information sharing can be reached. Furthermore, we prove that when the manufacturer cannot satisfy the total order of all the retailers, social welfare and consumer surplus will be locked by the capacity.