How retailer overconfidence affects supply chain transparency with manufacturer encroachment

This study analyzed how retailer overconfidence affects supply chain transparency for manufacturers who can encroach on the retail channel by paying a fixed entry cost. Both the reselling model and agent selling model were examined. The results show that an overconfident retailer has more incentive to increase the supply chain transparency in the reselling model than in the agency selling model. In detail, retailer overconfidence may lead to supply chain transparency even at a moderate channel substitution rate, and this effect can be enhanced with an increasing level of retailer overconfidence. This finding differs from conventional wisdom, which indicates that a retailer should not share any information if the channel substitution rate is not sufficiently high. The findings of this study are helpful to explain why some retailers voluntarily share information with manufacturers that have less-competitive direct selling channels. Additionally, from the perspective of entry cost, the results also indicate that an overconfident retailer can have more incentive than a normal retailer to increase the supply chain transparency in the reselling model. For the agent selling model, the results show that the above findings are reversed. Finally, whether using a wholesale or agency model, the retailer may benefit from its overconfidence bias in certain situations when it can voluntarily share information.