Bull whip effect 3

For example supply chain partners seldom share

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Unformatted text preview: her partners abusing information and reaping all the benefits from information sharing. For example, supply chain partners seldom share information that relates to sensitive cost data, e.g., production yield data or purchase price of parts. This is consistent with economists’ finding that a powerful monopolistic or monopsonistic partner can extract all economic profit from his or her partner, but one way of defending a positive profit for the weaker party is to keep the cost hidden and maintain informational superiority. The profit associated with superior information is often called the informational rent Even when each partner is guaranteed a positive gain in return for information sharing, each partner can play a non-cooperative game and haggle over how much. This may potentially lead to a failure to share information. Thus, trust and cooperation become critical ingredients in a supply chain partnership. On the other hand, trust needs to be rationalized by a relevant economic return. Cooperative game theory [28] offers a starting point to the resolution of the problem, but reality is much more complicated with many additional factors and special considerations. Another concern associated with information sharing is the confidentiality of information shared. Suppose, for example, that a supplier supplies a critical part to two manufacturers who compete in the final product market. Either manufacturer would not share information (like sales data) with the supplier unless it is guaranteed that the information is not leaked to the other manufacturer. But the situation becomes tricky if the supplier and one of the two manufacturers are the same company. Note also that information sharing in certain settings can be a subject of antitrust regulations. Suppose that two retailers regularly share with the supplier their demand projection for the next ten weeks. The projection by one retailer may implicitly signal the plan of a sales/promotion campaign in some future week. When this information is relayed to the other retailer through the sup...
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