In a two-level supply chain with one supplier who has ability to launch a direct channel and one risk-averse retailer who has private demand forecast information,the optimal decisions and expected utility under four different strategies are derived,and the impact of demand forecast accuracy and risk aversion is explored. The influence of supplier encroachment on channel members’utilities is examined both with and without information sharing. The equilibrium strategies are investigated under different conditions. The results indicate that both the channel members are better off when improving forecast accuracy or reducing risk aversion. Supplier encroachment may lead to four possible outcomes,namely,“lose-win”,“lose-lose”,“win-lose”and“win-win”. The optimal information sharing strategy for the retailer is closely related to the basic demand,his cost advantage and his risk aversion. Only when the basic demand is not too high and the cost advantage is sufficiently pronounced,may the retailer share demand information to induce the supplier to launch a direct channel. The higher the risk aversion is,the more likely the retailer is to share demand information. Even if the intrusion cost is very high,the supplier may launch a direct channel strategically. Finally, numerical studies show that only when the retailer’s sales cost is not too high can he initiate to share information.