Retailer Information Sharing With Upstream Product Line Flexibility

Abstract

With the rise of the digital economy, many firms are enhancing product line flexibility (i.e., the ability to adjust product line length or depth) to better manage demand uncertainties brought about by disruptive technologies. Concurrently, the booming digital economy has widened the information gap in supply chains. Retailers/platforms can now gather more detailed data to predict demand, but such data remains unavailable to manufacturers. This article studies how a manufacturer’s product line flexibility influences a retailer’s incentive to voluntarily share private demand information. We show that upstream product line flexibility encourages a retailer to voluntarily share information when product substitutability is low and the product line extension fee is moderate. This insight challenges the conventional belief that retailers should keep demand information private to maintain an advantage over manufacturers. Our work is the first to suggest that upstream product line flexibility can significantly motivate retailer information sharing. Additionally, we show that, although a social planner might prefer to withhold demand information from the manufacturer in the absence of product line flexibility, sharing this information becomes preferable when the manufacturer can adjust the product line length. The retailer’s decision on information sharing can align with the social planner’s in such scenarios. Furthermore, we demonstrate that, given upstream product line flexibility, except when product substitutability is not sufficiently high and the product line extension fee is moderate, the retailer’s information sharing decision is unaffected by whether the manufacturer determines the product line design before or after demand is realized and shared accordingly.