This study investigates a retailer's incentive for sharing private demand information with a supplier who may encroach the retail channel by imposing a fixed entry cost. Although conventional wisdom ...suggests that a retailer should withhold her private demand observations to maintain an information advantage over the supplier, we obtain a different conclusion by demonstrating that the retailer may prefer to voluntarily share the demand information in anticipation of supplier encroachment. The intuition is that in face of the threat of supplier encroachment, sharing low demand information may prevent the supplier from establishing a direct selling channel, which will reduce downstream channel competition. This strategic effect of information sharing is new and only becomes dominant when there is an intermediate entry cost for encroachment and a high channel substitution rate. In contrast, when there are deviations from these conditions, the supplier's equilibrium encroachment decision is consistent and irrespective of the retailer's decision to share information, which makes withholding the demand information more beneficial to the retailer. The change of information sharing structure in the channel also leads to some unintended payoff implications, as the supplier's and channel's payoffs exhibit non‐monotonic relations to the entry cost or channel substitution rate.
Motivated by “company+farmer” farming operations of Wens, New Hope Liuhe, and Huiren, this study formalizes the impact of production‐management and resource‐providing types of contract farming, in ...which the buying firm commits to an ex ante procurement price and promises to buy the high‐value agricultural product (HVA) from contract farmers. We analyze the buyer's cost reduction effort and its impact on farmer participation to characterize the effect of contract farming on the agricultural product supply and all stakeholders. Additionally, we explore the impact of the HVA's production cost. We analytically show that all contract and non‐contract farmers are better off after an introduction of contract farming for HVA. Hence, contract farming can improve the farmers’ income and alleviate poverty. However, if HVA is costly to produce, there will be an inequality‐widening type of contract farming in which contract farmers are more efficient than non‐contract farmers, and the income disparity among farmers will widen. Otherwise, there will be an inequality‐reducing type in which contract farmers are less efficient than non‐contract farmers such that the income disparity among farmers will decrease. More importantly, the buyer benefits from a lower HVA's production cost, but this can hurt all contract and non‐contract farmers for a given equilibrium type. Moreover, reducing the HVA's production cost can increase the supply of a substitutable traditional product along with the switch of equilibrium from the inequality‐widening type to the inequality‐reducing one.
We consider an agricultural supply chain consisting of a capital‐constrained smallholder farmer and an intermediary platform. The smallholder farmer sells agricultural products through the ...intermediary platform but lacks financial resources for planting. In addition to traditional bank financing (provided by a bank), the creditworthy intermediary platform can provide loans directly to the farmer (known as direct financing) or serve as a guarantor if the farmer's creditworthiness is insufficient to access bank loans (known as guarantor financing). We show that under guarantor and direct financing, the smallholder farmer's production level can be even higher than that in a centralized system. The farmer prefers direct financing when the production cost is low but the unit commission fee is sufficiently high. Otherwise, he prefers guarantor financing. The intermediary platform will encourage the farmer to resort to bank financing when the farmer's production cost is sufficiently high and the commission fee is low. Otherwise, it will provide direct financing. Guarantor financing makes the platform weakly worse off than direct financing and will be adopted only when the platform is also capital‐constrained. The involvement of the intermediary platform significantly improves the welfare of the farmer and the total profit of the supply chain. Moreover, the increased concern for social responsibility of the intermediary platform can lead to a win‐win‐win outcome for the farmer, the platform, and the whole supply chain.
This study investigates the interactions between a manufacturer's information acquisition and quality disclosure strategies in a supply chain setting in which the manufacturer privately knows his ...product quality but is uncertain about consumer preferences. We argue that the manufacturer should treat his information acquisition and quality disclosure decisions as an integrated process because these decisions can significantly influence a retailer's rational inferences about product quality and can have conflicting effects on his own profitability. Although information acquisition helps a manufacturer subsequently craft better pricing and quality disclosure strategies, it also leaks certain product information to the retailer, thus helping the retailer better estimate product quality. Therefore, in equilibrium, a manufacturer may choose not to acquire any consumer information, even when such acquisition is costless. Moreover, we find that this adverse effect of acquisition is highly dependent on the cost of disclosure and consumers’ preference differentiation. Increased consumer preference differentiation may have a non‐monotonic relationship with the manufacturer's profit, and information acquisition can become detrimental to the manufacturer once the disclosure cost is sufficiently high.
This study investigates a supplier’s voluntary disclosure strategy when it can encroach on a retailer’s operations by selling directly to final consumers. The establishment of a direct sales channel ...expands market potential, induces the supplier to adopt a more frequent disclosure strategy, and ultimately leads to a higher level of information transparency in the supply chain. Since more quality information is revealed in the presence of a dual channel, the retailer is able to free ride on the supplier’s disclosure to enhance consumers’ quality expectations. In most cases, such a free‐riding effect is positive and can even create a higher ex ante payoff for the retailer in face of the supplier’s encroachment. Conversely, more transparent product quality information does not necessarily benefit the supplier, who can then no longer hide negative quality information from consumers due to the potential change in the channel structure. Thus, we show that the supplier’s ex ante payoff may become lower with encroachment and that the supplier may commit not to encroach on the retail market, even when it has a free option to open a direct sales channel.
Consumers seek for not only base functionalities of products they buy but also fairness in transactions. In this work, we investigate how such fairness‐seeking behavior affects a manufacturer's ...distribution channel structure selection. Specifically, the manufacturer can sell the product directly to consumers (named direct selling) or via a middleman retailer (named agent selling). The manufacturer then decides which distribution channel to adopt with an aim to maximize his profit. Under a newsvendor framework, the distribution channel structure endogenizes the procurement cost and thus impacts consumers’ fairness perception and willingness to pay. Interestingly, we show that it may be in the manufacturer's best interest to downward decentralize his distribution channel by adopting agent selling when consumers are extremely fairness‐minded. However, when the consumer's fairness concern is weak, direct selling is preferred by the manufacturer. We further show that the above results qualitatively hold when we take into consideration the downstream competition, the dominance of the manufacturer in retail pricing and the heterogeneity of the consumers in their fairness seeking.
In this study, we investigate a seller's voluntary disclosure strategy when serving two groups of consumers who arrive sequentially and are reference dependent with respect to product quality. ...Consumers may be naive or sophisticated, depending on whether they can make rational inferences from the seller's disclosure behavior and an experienced consumer's quality review. We show that when consumers are naive, the seller can strategically withhold high‐quality information and disclose low‐quality information to boost the reference‐dependent early adopter's subjective quality review, which in turn enhances the follower's quality expectation and allows the seller to extract more surplus in the second period. However, when consumers are sophisticated, it is difficult for the seller to enhance their quality expectations by designing his disclosure strategy to manipulate the early adopter's quality review. The seller discloses all the quality information to consumers. When the market contains both naive and sophisticated consumers, the seller is able to withhold relatively low‐quality information in advance. In such a situation, the seller exclusively serves naive customers in the first period by charging a high retail price. The earlier results are quite robust, regardless of whether the review rating is bounded or whether consumers possess heterogeneous preferences with respect to product quality.
Recent years have witnessed e‐commerce platforms that voluntarily invest in new digital technologies to help their suppliers reduce production costs. To examine its impact on channel structure, we ...develop a supply chain model consisting of a supplier and an e‐commerce platform who purchases products from the supplier at a wholesale price and sells them to end markets. In addition, the supplier has the option to accept the marketplace by paying a commission fee charged by the platform. We show that the presence of voluntary investment on production improvement can overturn some classical insights from prior studies. For example, a higher marketplace commission fee can lead to a lower selling quantity in the marketplace, but a higher order quantity in the reselling channel under certain conditions. This stands in strict contrast to the opposite finding when the platform invests instead on demand enhancement. In addition, previous studies suggest that offering the supplier the marketplace option is beneficial to the supplier but is detrimental to the platform. However, with voluntary investment, the platform can benefit from allowing the supplier to encroach via the marketplace, and in some situations the supplier suffers from having such an option. We find that the commission fee and the production cost are two interacting forces steering equilibrium decisions for supply chain members, and we characterize the concise operating regimes for the channel structure choices on behalves of the supplier and the platform. A number of extensions are discussed, including product substitution level, investment cost structure, whether the quantity decisions are made simultaneously or sequentially, voluntary investment timing, and endogenous commission fee.
We study pricing strategies of competing firms selling heterogeneous products to consumers. Goods are substitutes and there are network externalities between neighboring consumers. In equilibrium, ...firms price discriminate based on the network positions and charge lower prices to more central consumers. We also show that, under some conditions, firms' equilibrium profits decrease when either the network becomes denser or network effects increase. In contrast, consumers always benefit from being more connected to each other. We determine the optimal network structure and compare uniform pricing and discriminatory pricing from the perspectives of firms and consumers.
The success of the bioenergy industry will depend, in part, on enough biomass feedstocks being grown. To increase the reliability of feedstocks supply, a government can offer two types of subsidy ...program: a farmer subsidy program (FSP) and a bioenergy producer subsidy program (PSP). We develop models to analyze the optimal subsidy program by capturing the interactions between the government, the bioenergy producer, and the farmers. The models incorporate the subsidy budget constraint, the environmental benefits from the use of bioenergy, the farmer's risk aversion and land capacity constraint, as well as the yield uncertainty of feedstocks. The findings reveal that both FSP and PSP are effective as long as the farmers' land capacity exceeds a threshold. If both the subsidy budget and the land capacity are sufficiently large, PSP outperforms FSP; if only the subsidy budget is limited, FSP is better; if only the land capacity is limited, FSP and PSP are equivalent. Counter‐intuitively, we find that PSP always favors farmers more, while FSP favors the bioenergy producer more under certain conditions. Also, we find that FSP can better mitigate risk than PSP when yield uncertainty is high. Lastly, insights for policy makers to promote bioenergy development are highlighted.
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