Does uncertainty spread vertically? A theory of multilayer newsvendors under asymmetric information

Abstract

Using a vertically related multilayer newsvendors framework, this paper analyzes the impacts of market uncertainties and asymmetric information between firms at successive stages of a supply chain on their optimal stocking (and/or pricing) decisions. The asymmetric information along the supply chain effectively transmits the downstream uncertainty backward to the preceding stages of the supply chain. Our results imply that for industries in which there are lead times and asymmetric information in multiple successive stages along the supply chain, it is essentially important for the upstream firms to study the market conditions facing the vertically related downstream firms, and it is important for them to design incentive-compatible mechanisms to facilitate efficient information sharing among vertically related entities. In these industries, the entities might also have stronger incentives to invest in lead time reduction and in information acquisition, if such options exist. Our framework offers a good starting point for a more comprehensive study in the future on the interactions among and the impact of differential lead times across successive stages in supply chains.

Optimal Information-Sharing Behaviors among Hotels: Game-Theoretical Approach

“…An information-sharing equilibrium was found in the competition between different types and similar size hotels: α 1 H = α 2 H = 0 and α 1 L = α 2 L = 1 , in which both types of hotels always shared their information only if they faced a low demand signal in this market. Through sharing private information with competitors, hotels can increase market information and reduce uncertain demand conditions (Gal-Or 1986; Van Zandt & Vives, 2007; Yang et al, 2020). Thus, it helps generate profits when hotels face a low demand signal in the competitive market.…”

“…As per the nature of the lodging industry, the quantity is not controlled; Cournot competition model with respect to information-sharing equilibrium could be examined in different settings. Second, the source of uncertainty (demand vs. cost) influences the incentives to share information (Cason, 1994; Osborne & Rubinstein, 1994; Rasmusen, 2007; Rodriquez, 2003; Yang et al, 2020; Zhang et al, 2019). Especially, the uncertainty source, along with the information-sharing decision, determines the degree of correlations between firms’ strategies.…”

Research Progress of Information Asymmetry in Recent Ten Years

“…Yang et al extended the news supplier model to a vertically related multi-layer news supplier structure, and discussed the crash of request doubt and asymmetric information on the best list (and/or cost) decision-making and efficiency at all levels of the supply chain [13]. The asymmetric information in the continuous stage of the supply chain successfully hands on the influence of downstream market doubt and delivery time to the previous stage of the supply chain, so as to form a multi-layer system of vertically related news supplier problems.…”