Inventory transshipment game with limited supply: Trap or treat

Author ORCID Identifier

Ziteng Wang:https://orcid.org/0000-0001-7763-8959

Publication Title

Naval Research Logistics

ISSN

0894069X

E-ISSN

44027

Document Type

Article

Abstract

Inventory transshipment is generally shown to be beneficial to retailers by matching their excess demand with surplus inventory. We investigate an inventory transshipment game with two newsvendor-type retailers under limited total supply and check whether the retailers are better off than the case without transshipment. We derive the ordering strategies for the retailers and show that unlike the unlimited supply case, a pure Nash equilibrium only exists under certain conditions. Furthermore, contrary to the conventional wisdom, we show that inventory transshipment may not always benefit both retailers. Although one of the retailers is guaranteed to be better off, the other could be worse off. The decision criteria are then provided for the retailers to determine if they will benefit from the exercise of inventory transshipment. Numerical study indicates that the carefully chosen transshipment prices play an important role in keeping inventory transshipment beneficial to both retailers. Subsequently, a coordinating mechanism is designed for the retailers to negotiate transshipment prices that maximize the total profit of the two retailers while keeping each of them in a beneficial position.

First Page

383

Last Page

403

Publication Date

9-1-2020

DOI

10.1002/nav.21925

Keywords

bargaining, game theory, inventory transshipment, newsvendor, supply chain coordination

Department

Department of Industrial and Systems Engineering

Link to Full Text

Share

COinS