Abstract: With the advance of information technology, retailers can predict market demand accurately due to rich market data from customers. The setting where the retailer shares her private demand information with upstream manufacturer not only reduces the bullwhip effect between them, but also enables the manufacturer to better determine their wholesale prices in respond to uncertain market. Unluckily, according to investigations and reports fromKeifer and Forrester's research, just a few retailers have an incentive to share their private demand information with manufacturers. In other words, almost retailers do not share their demand information. The intuition is that retailers are always harmed by the more significant double marginalization problem in the dual-channel supply chain with informed manufacturers. However, these researchers ignore products'network externality which is the positive effect described in economics and business, i.e., an additional user of goods or service adds the value of that product to others. Products such as computer software, television, and phone have network externality.
Motivated by these observations,it is explored that whether retailers have an incentive to share their demand information with manufacturers in the dual-channel supply chain considering the network externality or not. A Stackelberg game is established with the manufacturer as the leader and the retailer as the follower. The optimal expect profits of the retailer and the manufacturer is derived by backward induction. It is found that the retailer's private demand information is always beneficial to the manufacturer considering the network externality or not. As expected, the retailer still has no incentive to share her demand information with the manufacturer without considering the network externality. This is in line with traditional wisdoms. To our surprise, the retailer may share her demand information with the manufacturer considering the network externality for free. Specifically, (i) when the network externality is enough large, the retailer shares her demand information with the manufacturer; (ii) otherwise, the retailer still never share her demand information.
In addition, the supply chain and the manufacturer always benefit from the demand informationreceived from the retailer under network externality. So the Nash information compensation mechanism is designed and the condition where the manufacturer pays the retailer information fee is identified in order to incentive the retailer to share her demand information with manufacturer under network externality.It is found that only if the network externality is large, the manufacturer can receive the demand information from the retailer through paying appropriate fee to the retailer.

Key words: dual-channel supply chain, information sharing, network externality