Non-Credible Information Flows Between Food Manufacturers and Retailers

Asymmetric information between food manufacturers and retailers constrains the efforts of analysts studying the retail food chain. The problem may be especially pronounced during new product introductions. Manufacturers may have demand information about new products but have incentives to not credibly relay that information. Retailers often lack reliable demand information about new products. Understanding the roots of non-credible information flows within the manufacturer/retailer relationship is important to behavioral modeling in the food chain. This paper provides an analytic derivation to explain sufficient conditions for non-credible information flows leading to asymmetric information and adverse selection problems. Results provide insight about formation of information sharing mechanisms in the retail grocery channel. Accuracy of retailers ' subjective beliefs about new product demand are critical for optimal decision-making in the retail food chain. A retailer's stock-ing decision is based largely upon demand expec-tations. When economists or marketing analysts study relationships in the retail food chain, model-ing the existence of asymmetric information is im