WRITING 159: REVIEW REPORT

This paper studies a contract choice problem in the cross-sales setting. There are two competing manufacturers who sell substitutable products through two retailers to consumers. The demand is linear with uncertain intercept (potential). The retailers are better informed about the demand. There are two contract choices to organize the selling. The first is the wholesale price contract without information sharing, in which manufacturers decide based on the prior distribution of the demand, while each retailer j  use his more accurate demand signal f_j. The second contract choice is two-part tariff with information sharing, in which the manufacturers gain access to both signals (f_1,f_2) for decision making. All parties are risk-neutral and profit-maximizing.

The main result is that, all parties gain from two-part tariff with information sharing, when competition is weak, or competition is intense but demand uncertainty is high. The result is rather straightforward: under the stated conditions, two-part tariff reduces double marginalization and increases channel efficiency. Moreover, information sharing allows the manufactures to make more accurate, tailored decisions, which again increases channel efficiency. Since both factors increase efficiency (hence the size of the pie), each retailer may benefit, too (even if his share of the pie reduces).

I commend the authors’ effort to carry out a fairly complete analysis of the equilibrium outcomes. This exercise is certainly valuable, but the main result is not sufficiently innovative. So I do not find a compelling reason for publishing this paper.

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