Real Effects of Information Spillovers Down the Supply Chain: Evidence from Product Price Changes
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This study investigates the information spillovers of management revenue forecasts (MRFs) on downstream firms’ product pricing. Using daily price data from Amazon Marketplace, I find that product prices set by retailers are more likely to change following the MRFs issued by the manufacturers making those products. Consistent with a learning mechanism (i.e., retailers update their beliefs regarding product demand or supply), the spillovers are stronger for new products or when more retailers are selling the same products (i.e., facing higher uncertainty and possessing less precise product information), while the spillovers are weaker for products when retailers are larger (i.e., facing lower uncertainty and possessing more precise product information). Using the COVID-19 pandemic as an exogenous shock to the relative informativeness of MRFs, I find that the spillovers are stronger during COVID-19, which is consistent with learning. Spillovers are also stronger when the manufacturer's business description is more closely aligned with the retailer's product category. Lastly, I find that retailers' directional price responses to revenue news depend on whether the MRF conveys demand- or supply-driven news, supporting the learning mechanism. Overall, my findings are consistent with information spillovers down the supply chain, affecting pricing decisions in product markets.