When ignorance is bliss: The retailer's intelligence hazard under information sharing and exchanging

When a manufacturer possesses demand information, there is an opportunity for the retailer to infer the manufacturer's demand information based on the wholesale price. This paper explores the impact of such inference on the retailer's unilateral information sharing and bilateral information exchanging strategies in a supply chain with one retailer and two competing manufacturers. Two scenarios were studied under information sharing and exchanging schemes: an intelligent retailer who infers the manufacturers’ demand information from the wholesale prices and an unintelligent retailer who does not infer the information. Our analysis reveals that, regardless of whether the retailer infers or not, the retailer does not want to unilaterally share his information upward with the manufacturers. However, an unintelligent retailer is willing to exchange information with the manufacturers, and the inference does not fully undermine the retailer's incentives to exchange information. Furthermore, we find that, although the retailer's inference can help him cope with demand uncertainty, it can actually turn into a hazard (i.e., the retailer's intelligence hazard) under both information sharing scheme and information exchanging scheme; that is, being ignorant to the manufacturers’ demand information may be a bliss to everyone. We finally observe that side payment transfer may help eliminate the intelligence hazard under bilateral information exchanging but cannot resolve the intelligence hazard under unilateral information sharing.