Separating equilibrium of ordering process in supply chain under the presence of demand information leakage

According to the demand information asymmetry in supply chain, a two-echelon supply chain has been studied, which consists of one supplier and two retailers which engaged in price competition. One of the retailers has the priority on demand information, which is called incumbent, and the other one is entrant. By comparing the supplier´s profits under the condition of complete information and incomplete information, we found that the incumbent´s private information always be leaked to the entrant by supplier. On the base of this, a signaling game model between the incumbent and the entrant during the process of ordering has been established, and the separating equilibrium has been analyzed. The result shows that the separating equilibrium cannot prevent information leakage. Furthermore, in order to separating from the low type incumbent the high type incumbent must sacrifice some profits. Finally, a corresponding example was presented to illustrate the conclusions.