Committed or contingent? The retailer’s information acquisition and sharing strategies when confronting manufacturer encroachment

Abstract Unlike most studies focusing on the manufacturer’s channel strategy, we investigate how a retailer strategically acquires and shares consumer quality preference information when confronting manufacturer encroachment. As a follower, the manufacturer decides the quality level and sales quantity based on the information he holds. Considering the retailer’s flexibility in acquisition timing, we focus on two formats, namely committed acquisition and contingent acquisition, depending on whether the retailer commits to her acquisition decision before or after the manufacturer’s quality investment. Assuming the manufacturer provides identical product through different selling channels, we find that when the manufacturer’s direct selling efficiency is high, contingent acquisition is always a weakly dominant strategy, while the retailer is suggested to commit to acquire information if and only if the direct selling efficiency is low and the acquisition cost is relatively high. If the consumer quality preference is acquired, information sharing occurs only when the direct selling efficiency is sufficiently high, via which the retailer can induce a lower expected wholesale price, gain a higher market share, and achieve a “win-win” situation. With the information advantage, the retailer can always obtain a positive profit in the distribution channel, while the inefficient manufacturer may stop selling in the direct channel when consumers have a low preference for quality. Our result explains why, despite manufacturers directly obtain profits from their own channels, they still sell products through retail channels and even treat them as main distributive ways. Based on the above equilibrium outcomes, we derive the retailer’s optimal strategy for information management, whereby the retailer can not only induce the highest product quality, but also the highest consumer surplus as compared to other acquisition strategies. Our work can guide retailers to better implement information strategies when confronting manufacturer encroachment.