Abstract: In this work, information leakage and information distortion in a supply chain under a wholesale price contract are studied and theoretical basis is provided for the player's motivation and decisions in reality. A supply chain consisting of a common supplier and two retailer with different market status, an incumbent and an entrant is considered. The incumbent can privately acquire actual demand state while the supplier and the entrant have no access to learn demand information but know the prior distribution of the demand state. Thus, there exists asymmetric demand information between the incumbent with the supplier and entrant. The paper shows that the supplier always leaks the incumbent's order information to the entrant under a wholesale price contract. The entrant accepts the information being leaked by the supplier to assist order decision. Based on signaling game theory and perfect Bayesian Nash equilibrium, two equilibrium strategies including the separating equilibrium and the pooling equilibrium under information leakage are included and the ordering strategies of retailers under the different market demand states are shown. Further more, the supplier's and the incumbent's incentive with information distortion are studied and it is found that the supplier has an inventive to distort information to mislead the entrant to make wrong decisions in high demand state under the pooling equilibrium. The supplier and the incumbent more benefit under information distortion, whereas the entrant's profit decreases. Because the entrant earns positive revenue to guarantee business activities, he will remain the market to horizontally compete with the incumbent. Finally, a numerical example is given to verify the conclusions and illustrates the impact of information leakage and distortion on the profits of three players.

Key words: information leakage, information distortion, signaling game, asymmetric information