Manufacturers and retailers have introduced various ways such as quick response and continuous replenishment to leverage information sharing to improve supply chain performance. It is generally believed that when a retailer shares demand information with a manufacturer, the whole supply chain benefits from improved coordination. For the manufacturer, the gain is straightforward - better coordination should increase the supply chain's, and potentially its own, profit. For the retailer, it is more complicated since it may lose some advantage in future price negotiations by revealing sensitive demand information. Therefore, the manufacturer needs to provide the retailer with an incentive to share information. But is this always feasible?

As it turns out, information sharing does not always benefit a supply chain, according to a model developed by Albert Ha, Shilu Tong and Hongtao Zhang. They consider various characteristics of a supply chain, including production diseconomies of scale, information accuracy, competition intensity and the type of competition, to show the unequal outcomes.

Their model involves two supply chains, each with a manufacturer and a retailer, that have production diseconomies of scale, meaning that it is increasingly more costly to produce to meet a larger quantity ordered by the retailer .

When there is no competition, they show that information sharing allows a supply chain to lower its production cost, and the cost saving is more significant when production diseconomy is larger. As a result, information sharing benefits a supply chain when its production diseconomy is large.

Then they consider two types of retail competition - one based on quantity and the other on price - and they find that the nature of the retail competition can affect the outcome of information sharing.

"Information sharing in one supply chain triggers a competitive reaction from the other supply chain and this reaction is damaging to the first supply chain under quantity competition but may be beneficial under price competition," the authors say.

Supply chains therefore should consider the reaction of their rivals to their information sharing decisions.

"Even when a supply chain benefits from information sharing when there is no competition, it may actually suffer a loss under quantity competition if the competition is intense and the information is accurate, because the reaction from the rival supply chain creates a strongly negative effect," they say.

"When there is no competition, a manufacturer generally is better off because of receiving information from her retailer. However, under price competition, she may be worse off because of the greater residual demand uncertainty created by the competition reaction."

The authors also show that when the firms in the rival supply chain start sharing information, a supply chain can be better off if its production diseconomy is not too large.

"Our results also show that a supply chain has to be cautious when it improves its capability by making its information more accurate or its production diseconomy smaller. This is because under quantity competition such an improvement may hurt the supply chain if it induces the firms in the rival supply chain to cease sharing information."