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Inventory transshipment game with limited supply: Trap or treat
Author(s) -
Wang Ziteng,
Dai Yue,
Fang ShuCherng,
Jiang ZhongZhong,
Xu Yifan
Publication year - 2020
Publication title -
naval research logistics (nrl)
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.665
H-Index - 68
eISSN - 1520-6750
pISSN - 0894-069X
DOI - 10.1002/nav.21925
Subject(s) - transshipment (information security) , newsvendor model , profit (economics) , supply chain , nash equilibrium , business , microeconomics , operations research , computer science , economics , marketing , mathematics
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.