Information Acquisition, Strategic Ignorance, and Manufacturer Encroachment

Thursday, March 17, 2022 11:00to12:00

Speaker: Michael Kopel – University of Graz, Austria

Webinar link
Webinar ID: 841 3695 9888
Passcode: 120834

We study a manufacturer's encroachment choice when the retailer's decision to acquire and analyze demand information is costly. Notably, we explicitly take into account that the manufacturer might set such a high wholesale price that the retailer shuts down the indirect channel if demand turns out to be low. As a result, the retailer might opt to stay strategically ignorant about market information (even if it is free). We show that the retailer's optimal information acquisition strategy is non-monotonic in the expected market potential. Moreover, staying deliberately uniformed deters sufficiently inefficient manufacturers from opening up a direct channel which can be beneficial for the supply chain. We also consider the retailer's incentive to share information and find that if the market potential is sufficiently large, the retailer might prefer to share information with the manufacturer and - anticipating this - the latter does not encroach. In this sense, the retailer's information strategy is used as an anti-encroachment device. Information sharing can benefit the supply chain only if the manufacturer does not encroach.

(with Peter Habiger)

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