Examining Incentives to Share Demand Information with your Channel Partner

In this paper, we examine the information-sharing behavior of firms in a distribution channel context. Channel alliance initiatives like ECR and category management often involve pooling of information available with manufacturers and retailers. Such pooling of information should lead to better decision making and hence it is desirable. However, in practice, category management is often implemented with an intriguing institution of category captain, that involves the retailer entering into an alliance with only one (of many) supplier in a category. We first analyze the information sharing incentives of a manufacturer and retailer in a bilateral monopoly and identify the importance of quality of information available with the firms and the degree of complementarity of resources in determining the effectiveness of information sharing. We then show how these forces might lead to the emergence of the category captain phenomena in a model with competing manufacturers selling through a common retailer.