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Games with incomplete information: A simplified exposition with inventory management applications

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  • Wu, H.
  • Parlar, M.
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    Abstract

    In most existing literature in supply chain management it is assumed that the players possess complete information about the game, i.e., the players' payoff (objective) functions are assumed to be common knowledge. For static and dynamic games with complete information, the Nash equilibrium and subgame perfect equilibrium are the standard solution concepts, respectively. For static and dynamic games with incomplete information, the Bayesian Nash equilibrium and perfect Bayesian equilibrium, respectively, are used as solution concepts. After presenting a brief review of the static and dynamic games under complete information, the application of these two games in inventory management is illustrated by using a single-period stochastic inventory problem with two competing newsvendors. Next, we illustrate the Bayesian Nash and perfect Bayesian equilibrium solution concepts for the static and dynamic games under incomplete information with two competing newsvendors. The expository nature of our paper may help researchers in inventory/supply chain management gain easy access to the complicated notions related to the games played under incomplete information.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0925527311002696
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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 133 (2011)
    Issue (Month): 2 (October)
    Pages: 562-577

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    Handle: RePEc:eee:proeco:v:133:y:2011:i:2:p:562-577

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    Web page: http://www.elsevier.com/locate/ijpe

    Related research

    Keywords: Game theory Incomplete information Inventory theory;

    References

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    1. Chu, Wai Hung Julius & Lee, Ching Chyi, 2006. "Strategic information sharing in a supply chain," European Journal of Operational Research, Elsevier, vol. 174(3), pages 1567-1579, November.
    2. Gérard P. Cachon & Martin A. Lariviere, 1999. "Capacity Choice and Allocation: Strategic Behavior and Supply Chain Performance," Management Science, INFORMS, vol. 45(8), pages 1091-1108, August.
    3. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
    4. J. MUYSKENS & C. de Neubourg, 1986. "Introduction," Discussion Papers (REL - Recherches Economiques de Louvain) 1986031, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Martin J Osborne & Ariel Rubinstein, 2009. "A Course in Game Theory," Levine's Bibliography 814577000000000225, UCLA Department of Economics.
    6. Martin Shubik, 1955. "The Uses of Game Theory in Management Science," Management Science, INFORMS, vol. 2(1), pages 40-54, October.
    7. Robert Gibbons, 1997. "An Introduction to Applicable Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 127-149, Winter.
    8. Gérard P. Cachon & Martin A. Lariviere, 2001. "Contracting to Assure Supply: How to Share Demand Forecasts in a Supply Chain," Management Science, INFORMS, vol. 47(5), pages 629-646, May.
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    Cited by:
    1. Egri, Péter & Kis, Tamás & Kovács, András & Váncza, József, 2014. "An inverse economic lot-sizing approach to eliciting supplier cost parameters," International Journal of Production Economics, Elsevier, vol. 149(C), pages 80-88.

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