On the value of information sharing in the presence of information errors

Errors may occur in the information received by a manufacturer from the retailer. There are two types of information errors: transmission error that occurs in the transmission of information from the retailer to the manufacturer, and source error that occurs in the data observed by the retailer. This paper studies the value of information sharing in the presence of either or both types of information errors. In particular, when information is shared, the manufacturer may use both the shared demand information and the retailer's order quantity to make decisions, or it may rely solely on the shared demand information and disregard the retailer's order quantity when forecasting demand for the future. We analyze the values of information sharing for both settings, and characterize the lowest forecast error information sharing strategy for the manufacturer. Our results suggest that transmission error and source error have significantly different impacts on the value of information sharing and the manufacturer's optimal strategy.