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Information sharing and information rents in a two-level supply chain

journal contribution
posted on 2009-08-01, 00:00 authored by S Radhakrishnan, Bin Srinidhi
Advances in information technology have greatly facilitated information exchange in value- chains, and the resulting efficiencies from resource coordination have led to higher profits. However, in spite of the well-established advantages, not all value-chains have implemented such information exchanges. In this paper, we show that this lack of implementation could arise due to strategic behavior of value-chain partners. Specifically, allowing for strategic behavior, we examine the conditions under which information exchanges might or might not be implemented. The value-chain partners' trade off their share of increased value-chain profits from information exchange against the loss of their information rent. We develop the model of a two-partner value- chain with a manufacturer and a privately informed retailer. We show that the value-chain partners will agree to move from the traditional (no information exchange) to the information exchange regime only if (a) the retailer is sufficiently large, (b) the demand variability is sufficiently high, and (c) the cost of manufacturing is sufficiently low. This provides a rationale for why information exchange is not prevalent with small retailers.

History

Journal

Asia-Pacific Journal of Accounting and Economics

Volume

16

Issue

2

Pagination

123 - 144

Publisher

Taylor & Francis

ISSN

1608-1625

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

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