When manufacturers hold information back from strong suppliers

Supply chain coordination and collaboration in general requires dedicated investment by the members of the chain in order to decrease cost, increase capacity or mitigate risks. Usual assumptions in the literature include predefined contractual structures, common information on capacity, costs and added value generated. However, evidence suggests that supply chain collaboration is not as prevalent as theory would predict, indicating that true decision-makers may operate under different assumptions. In a supply chain model involving a dyad we prove the existence of equilibria under which information asymmetry between supplier and buyer is preferred: the buyer will keep information about relationship-specific investments private. We use a Stackelberg model for the single-period interaction between two parties when the buyer has to undertake a relationship-specific investment. Both parties have outside options and the upstream supplier has the leading role. We provide closed form results for general conditions and prove under mild conditions that a manufacturer may rationally seek to hide information about the quality and the relationship specific investment costs from the supplier so as to safeguard profits. A numerical instance illustrates the results