Incentive-Compatible Information Sharing by Dual-Channel Retailers

Abstract

We consider a market in which dual-channel retailers sell competitive products to consumers. Each retailer has its own information about the market demand (i.e., asymmetric information). In this setting, we present a game-theoretic model to investigate the value of incentive-compatible information sharing. Our results show that information sharing is not always beneficial for each retailer all the time; both the online and the traditional retailer can be better off under certain conditions; and the value of information sharing for each retailer increases as products are more compatible with online marketing. Furthermore, we also analyze the incentives for information distortion in information sharing. We find that both the online and the traditional retailer have an incentive to overstate their forecasts while sharing information. The information distortion may make the shared information useless or even stop the retailers from participating in information sharing. We thus propose an effective mechanism to eliminate information distortion, so that both the online and the traditional retailer can share their forecast information truthfully.

Keywords:

• Dual-channel retail
• game theory
• information distortion
• information sharing
• marketing strategies
• online marketing