Who Wants Consumers to Be Informed? Facilitating Information Disclosure in a Distribution Channel

Abstract

We investigate a retailer’s and a supplier’s incentive to facilitate information disclosure, i.e., consumer learning of their true product valuation, under two popular supply chain contracts, i.e., the agency pricing model and the wholesale pricing model. Our results show that when a product has medium or high dispersion in its consumers’ true valuation distribution and the degree of information disclosure before facilitation is moderate, two parties might have opposing interests as to more information disclosure. Specifically, in the agency pricing model, the revenue sharing mechanism leads the supplier to benefit, but the retailer to suffer, from more information disclosure. In the wholesale model, potential misalignment of interests as to more information disclosure disappears if the demand is linear. Double marginalization absorbs influence of two parties’ marginal cost discrepancy and eventually tunes the two parties’ margin proportional to each other. If the demand is log-concave and derived from common valuation distributions such as normal or logistic distributions, misalignment reappears in the wholesale model, but interestingly, the retailer benefits and the supplier suffers from more disclosure, which is opposite to the misalignment result in the agency model under the same log-concave demand. Our results suggest that information disclosure facilitation has a different interplay with the revenue sharing mechanism in the agency model than with double marginalization in the wholesale model.

The online appendix is available at https://doi.org/10.1287/isre.2017.0770 .