Acquisition, Aggregation, and Sharing of Information in Stackelberg and Supply Chain Markets

Consider two sequential-move models with private demand or cost information: 1) n firms set outputs sequentially and 2) one manufacturer sets the wholesale price, and then n retailers set outputs simultaneously. In the first model, large Stackelberg markets aggregate information efficiently. The first n-1 firms have incentives to share their information with their follower(s) when n=2 or the ratio of the signals' precision to the prior's precision is low enough. For n=2, more imprecise own information is beneficial to a firm if and only if the precision of the follower's signal (τ2) is low enough. Whereas expected consumer and total surpluses increase with τ2, they may decrease with the precisions of the public signal or the leader's signal at some intermediate values of τ2. In the second model, large markets do not aggregate information efficiently, yet expected total welfare is greater under incomplete information than under full information at either any n or high enough n. After the manufacturer firm shares its private information with its retailers, all agents in the economy are better off. The manufacturer benefits from more imprecise own information if and only if the precision of the retailers' signals is low enough. However, costless information acquisition always benefits a retailer. Whereas expected consumer and total surpluses increase with the precision of the retailers' signals, they always decrease with the precisions of the manufacturer's signal, the public signal, or the prior