Strategies for Supplier and Retailer’s Market Entrance with Asymmetric Quality Information

Abstract

In supply chains characterized by both cooperation and competition, quality disclosure strategies become increasingly complex and critical for enterprise. To address this issue, we examine a three-echelon supply chain in which an upstream supplier possesses superior quality information and may vertically integrate by encroachment, while a downstream retailer can open a store brand (SB) to enter the market. We find that opening a direct channel intensifies competition, which reduces the supplier’s incentive to disclose quality information and thus affects market transparency. In addition, the disclosure cost not only directly influences the supplier’s disclosure strategy, but also influences the supplier’s and the retailer’s encroachment strategies. Interestingly, we find that the supplier may prefer the retailer to enter the market alone rather than encroaching itself, even though sole encroachment would yield higher standalone profits. Finally, we find that a high disclosure cost may lead the supplier to reveal less information, yet consumer surplus nevertheless increases. This study provides insights for managers to understand the interaction between product quality information disclosure strategies and market entry strategies among enterprises in the supply chain.

Keywords

Supplier encroachment / store brand / information disclosure / signaling game

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