Information Exchange in a Value Chain: Implications For Pricing and Profitability
Posted: 10 Dec 1997
Date Written: August 1997
Though the benefits of information exchange across firms in a value chain have increased and the costs of information processing have gone down, there are only some cases where such systems have been implemented. In this paper, we develop a stylized model of a value chain that consists of a manufacturer and a retailer. We examine the inducement required for the retailer to move to an information exchange regime and the resulting relationship between the resource consumption and revenue for the manufacturer. In the model, the retailer possesses private information on demand. The retailer accepts the information exchange regime if and only if the proportion of the increased benefit that he gets is not less than the information rent he foregoes. The realized demand determines the revenue for the manufacturer. In contrast to resource based pricing, we show that there exist regions where the revenue does not move in consonance with resource usage, because of the extraction of information rents.
JEL Classification: M40, M46, D83
Suggested Citation: Suggested Citation