Abstract: It is commonly observed that a significant amount of information is being exchanged between suppliers and manufacturers, between manufacturers and retailers, between retailers and consumers, and also among competitors to gain competitive advantage. Many papers investigate horizontal information sharing among competitors in a one-level market in the absence of considering interactions between vertical parties. Most supply chains literatures study vertical information, in which horizontal information sharing is not considered. Some literatures in vertical information sharing considering horizontal competition show that downstream firms have no incentives to share information with the upstream firm voluntarily. If the upstream firm with more downstream firms' information is better off, the upstream can take the initiative to acquire information and share partial profit with downstream to incentive them to share information. However, the effect of vertical information acquisition on horizontal competitors' information exchange strategy is unclear. Therefore, the present study focuses on the incentives of information acquisition with horizontal information sharing in a supply chain environment. In this paper, the information acquisition, horizontal information sharing strategy and optimal pricing in a two-echelon supply chain, which consists of one upstream manufacturer and two downstream retailers are studied. The manufacturer offers same wholesale price to both retailers, and retailers are engaged in a Bertrand (price) competition by selling substitutable products. By constructing a Bertrand competition model, equilibrium order quantity and information sharing strategy for retailers are solved and the profit of the manufacturer, retailers and supply chain under different information acquisition strategies is analyzed and compared. In numerical study, an algorithm is developed to derive manufacturer's optimal wholesale price and the optimal profit of manufacturer, retailers and supply chain by using a Mathematica program. The study shows that full information sharing is retailers' dominant strategy. However, if downstream retailers share information with the manufacturer, the manufacturer will be better off but retailers will be worse off. Thus, there is no incentive for retailers to share information with upstream manufacturer voluntarily. Considering boundary equilibrium of retailers, it is shown that market variation and product substitutability play a significant role in supply chain's profit. When product substitutability is low, with information acquisition, the supply chain is better off and manufacturer can share partial profit with retailers to acquire retailers' information if the market variation is intermediate. When product substitutability is large enough, the supply chain is always better off with information acquisition. Moreover, it is shown that information acquisition strategy can be reversed when demand variation is intermediate or some equilibrium solutions are binding on zero. The model provides upstream manufacturer with optimal pricing and information acquisition strategies, as well as ways for downstream retailers to solve their own optimal sales prices, order quantities, and information sharing strategy.

Key words: supply chain management, information sharing, information acquisition, market uncertainty, product substitutability, Nash equilibrium