Information Sharing and Coordination Between Supply Chains with Bottom-Up Negotiations

This paper considers competition between two supply chains where one manufacturer has uncertain production costs and can share this private information with its rival. In contrast to existing literature, we study bottom-up negotiations in which dealers make offers to consumers before negotiating with manufacturers, as is common in many industries with complex products, such as interior design, trucks, or luxury cars. Furthermore, we allow for both quality-enhancing and cost-reducing investments and study how these variables affect the incentive to share information and the competitive effects of this conduct. We show that with bottom-up negotiations, information sharing is profitable and procompetitive. In contrast, in the classic model of vertical relations, where the manufacturer makes its choices before the retailer does, exchange of information is unprofitable. We also discuss the implementation of our mechanism by the coordinated setting of list prices.