Role of forecast effort on supply chain profitability under various information sharing scenarios

In this paper, we consider a manufacturer who sells a product to a retailer in a single selling season. Each party obtains a forecast of the market demand independent of each other. We study three different forecast scenarios: Non-Information Sharing, Information Sharing, and Retailer Forecasting cases. In the first scenario, both parties make their forecasts, but do not share the information with the other firm. In the second scenario, they share the information with each other, while in the last scenario, only the retailer makes the forecast, and shares it with the manufacturer. Noting that the forecast accuracy comes at a cost, we derive the optimal price and forecast accuracy level for each of the three cases. We then compare the optimal policies of the three cases and derive conditions under which the two parties should share information with each other. Results of extensive numerical experimentation are also presented.