Incentive information sharing in various market structures

Information sharing between firms has been cited as a major means to improve firm performance. This paper develops a conceptual framework that relates information sharing to firm profitability in a duopoly market. The framework allows each firm to have its own private information about uncertain market demand. We utilize a game-theoretical model to examine this framework. Our results reveal that information sharing has no uniform effect on firm performance. Firms behaving in the Bertrand mode benefit from information sharing only under certain conditions. However, firms behaving in the Stackelberg mode always benefit from information sharing. Further, we examine how the value of information sharing is affected by the nature of firm, the product brand, and the degree of product differentiation. Our results show that when two firms have high level of customer satisfaction, offer products with reputable brands, or sell products that are strongly substituted in the market, information sharing becomes significantly important and imperative to both firms. Particularly if two firms behave in a Stackelberg mode, the value of information sharing further increases. Furthermore, we also address the issue of information distortion and propose EDI (Electronic Data Interchange) information system with a nonnegative matrix-factorization technique as an effective and valuable mechanism to eliminate any possible information distortion, so that both firms can share their forecast information truthfully. Information becomes a critical resource to the success of a firm.Information sharing of competing firms is becoming increasingly prevalent.Information sharing shows different influences on the performance of a firm acting in different modes.Information could be distorted while sharing information.Valuable mechanism is needed to eliminate information distortion.