Incentives for Forecast Information Sharing Under Simple Pricing Mechanisms

In this chapter we discuss the ability of firms in supply chains to share forecast information using simple pricing mechanisms. Empirical evidence suggests that firms exchange non-verifiable forecast information via informal talk; this stands in sharp contrast with research suggesting that sharing non-verifiable information in this way invites firms to act in an opportunistic way, and, thus, such information should be exchanged using sophisticated signaling or screening mechanisms. We survey the challenges in sharing forecasts in supply chains, and some of the recent answers to this apparent contradiction between the observed industry practice and the suggested mechanisms in research. Specifically, we focus on the way competition between supply-chains serves as an enabler to share forecast information, and the way multiple decisions that are being made based on the shared information enables firms to share non-verifiable information in a “cheap-talk” manner.