IDEAS home Printed from https://ideas.repec.org/a/wly/navres/v51y2004i2p258-274.html
   My bibliography  Save this article

Dynamic inventory and pricing models for competing retailers

Author

Listed:
  • Fernando Bernstein
  • Awi Federgruen

Abstract

We address infinite‐horizon models for oligopolies with competing retailers under demand uncertainty. We characterize the equilibrium behavior which arises under simple wholesale pricing schemes. More specifically, we consider a periodic review, infinite‐horizon model for a two‐echelon system with a single supplier servicing a network of competing retailers. In every period, each retailer faces a random demand volume, the distribution of which depends on his own retail price as well as those charged by possibly all competing retailers. We also derive various comparative statics results regarding the impact several exogenous system parameters (e.g., cost or distributional parameters) have on the equilibrium decisions of the retailers as well as their expected profits. We show that certain monotonicity properties, engrained in folklore as well as in known inventory models for centralized systems, may break down in decentralized chains under retailer competition. Our results can be used to optimize the aggregate profits in the supply chain (i.e., those of the supplier and all retailers) by implementing a specific wholesale pricing scheme. © 2003 Wiley Periodicals, Inc. Naval Research Logistics, 2004.

Suggested Citation

  • Fernando Bernstein & Awi Federgruen, 2004. "Dynamic inventory and pricing models for competing retailers," Naval Research Logistics (NRL), John Wiley & Sons, vol. 51(2), pages 258-274, March.
    • Handle: RePEc:wly:navres:v:51:y:2004:i:2:p:258-274
    DOI: 10.1002/nav.10113
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/nav.10113
    Download Restriction: no
    File URL: https://libkey.io/10.1002/nav.10113?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Awi Federgruen & Aliza Heching, 1999. "Combined Pricing and Inventory Control Under Uncertainty," Operations Research, INFORMS, vol. 47(3), pages 454-475, June.
    2. Kirman, Alan P & Sobel, Matthew J, 1974. "Dynamic Oligopoly with Inventories," Econometrica, Econometric Society, vol. 42(2), pages 279-287, March.
    3. Fernando Bernstein & Awi Federgruen, 2003. "Pricing and Replenishment Strategies in a Distribution System with Competing Retailers," Operations Research, INFORMS, vol. 51(3), pages 409-426, June.
    4. Fangruo Chen & Awi Federgruen & Yu-Sheng Zheng, 2001. "Coordination Mechanisms for a Distribution System with One Supplier and Multiple Retailers," Management Science, INFORMS, vol. 47(5), pages 693-708, May.
    5. Schmalensee, Richard, 1983. "Advertising and Entry Deterrence: An Exploratory Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 636-653, August.
    6. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-748, September.
    7. Jan A. Van Mieghem & Maqbool Dada, 1999. "Price Versus Production Postponement: Capacity and Competition," Management Science, INFORMS, vol. 45(12), pages 1639-1649, December.
    8. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    9. A. Federgruen & P. Zipkin, 1986. "An Inventory Model with Limited Production Capacity and Uncertain Demands II. The Discounted-Cost Criterion," Mathematics of Operations Research, INFORMS, vol. 11(2), pages 208-215, May.
    10. Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 4(2), pages 166-176.
    11. A. Federgruen & P. Zipkin, 1986. "An Inventory Model with Limited Production Capacity and Uncertain Demands I. The Average-Cost Criterion," Mathematics of Operations Research, INFORMS, vol. 11(2), pages 193-207, May.
    12. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhu, Chenbo & Hu, JianQiang, 2020. "Revenue management games with government mandate," Omega, Elsevier, vol. 93(C).
    2. Ghavamifar, Ali & Makui, Ahmad & Taleizadeh, Ata Allah, 2018. "Designing a resilient competitive supply chain network under disruption risks: A real-world application," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 115(C), pages 87-109.
    3. Yiting Xing & Ling Li & Zhuming Bi & Marzena Wilamowska‐Korsak & Li Zhang, 2013. "Operations Research (OR) in Service Industries: A Comprehensive Review," Systems Research and Behavioral Science, Wiley Blackwell, vol. 30(3), pages 300-353, May.
    4. Wallace J. Hopp & Xiaowei Xu, 2008. "A Static Approximation for Dynamic Demand Substitution with Applications in a Competitive Market," Operations Research, INFORMS, vol. 56(3), pages 630-645, June.
    5. Liu, Weiwei & Kong, Nan & Wang, Mingzheng & Zhang, Lingling, 2021. "Sustainable multi-commodity capacitated facility location problem with complementarity demand functions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    6. Schlicher, Loe & Lurkin, Virginie, 2022. "Stable allocations for choice-based collaborative price setting," European Journal of Operational Research, Elsevier, vol. 302(3), pages 1242-1254.
    7. Fernando Bernstein & Awi Federgruen, 2004. "A General Equilibrium Model for Industries with Price and Service Competition," Operations Research, INFORMS, vol. 52(6), pages 868-886, December.
    8. Qi Feng & Yuanchen Li & J. George Shanthikumar, 2020. "Competitive Revenue Management with Sequential Bargaining," Production and Operations Management, Production and Operations Management Society, vol. 29(5), pages 1307-1324, May.
    9. Ali Ekici & Baṣak Altan & Okan Örsan Özener, 2016. "Pricing decisions in a strategic single retailer/dual suppliers setting under order size constraints," International Journal of Production Research, Taylor & Francis Journals, vol. 54(7), pages 1887-1898, April.
    10. Xiaowei Xu & Wallace J. Hopp, 2006. "A Monopolistic and Oligopolistic Stochastic Flow Revenue Management Model," Operations Research, INFORMS, vol. 54(6), pages 1098-1109, December.
    11. Sudipta Sinha & Nikunja Mohan Modak & Shib Sankar Sana, 2020. "An entropic order quantity inventory model for quality assessment considering price sensitive demand," OPSEARCH, Springer;Operational Research Society of India, vol. 57(1), pages 88-103, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fernando Bernstein & Awi Federgruen, 2005. "Decentralized Supply Chains with Competing Retailers Under Demand Uncertainty," Management Science, INFORMS, vol. 51(1), pages 18-29, January.
    2. Rodney P. Parker & Roman Kapuściński, 2011. "Managing a Noncooperative Supply Chain with Limited Capacity," Operations Research, INFORMS, vol. 59(4), pages 866-881, August.
    3. Fernando Bernstein & Awi Federgruen, 2004. "A General Equilibrium Model for Industries with Price and Service Competition," Operations Research, INFORMS, vol. 52(6), pages 868-886, December.
    4. Fernando Bernstein & Awi Federgruen, 2007. "Coordination Mechanisms for Supply Chains Under Price and Service Competition," Manufacturing & Service Operations Management, INFORMS, vol. 9(3), pages 242-262, January.
    5. Gavirneni, Srinagesh, 2006. "Price fluctuations, information sharing, and supply chain performance," European Journal of Operational Research, Elsevier, vol. 174(3), pages 1651-1663, November.
    6. Elodie Adida & Georgia Perakis, 2014. "The effect of supplier capacity on the supply chain profit," Annals of Operations Research, Springer, vol. 223(1), pages 1-52, December.
    7. Xiao, Tiaojun & Qi, Xiangtong, 2008. "Price competition, cost and demand disruptions and coordination of a supply chain with one manufacturer and two competing retailers," Omega, Elsevier, vol. 36(5), pages 741-753, October.
    8. Wei Shi Lim, 2009. "Overselling in a Competitive Environment: Boon or Bane?," Marketing Science, INFORMS, vol. 28(6), pages 1129-1143, 11-12.
    9. Jian Yang & Zhaoqiong Qin, 2007. "Capacitated Production Control with Virtual Lateral Transshipments," Operations Research, INFORMS, vol. 55(6), pages 1104-1119, December.
    10. Zhou, Yong-Wu & Cao, Zong-Hong & Zhong, Yuanguang, 2015. "Pricing and alliance selection for a dominant retailer with an upstream entry," European Journal of Operational Research, Elsevier, vol. 243(1), pages 211-223.
    11. Wenjing Shen & Izak Duenyas & Roman Kapuscinski, 2014. "Optimal Pricing, Production, and Inventory for New Product Diffusion Under Supply Constraints," Manufacturing & Service Operations Management, INFORMS, vol. 16(1), pages 28-45, February.
    12. Wen Chen & Ying He, 2022. "Dynamic pricing and inventory control with delivery flexibility," Annals of Operations Research, Springer, vol. 317(2), pages 481-508, October.
    13. Woonghee Tim Huh & Ganesh Janakiraman & Mahesh Nagarajan, 2011. "Average Cost Single-Stage Inventory Models: An Analysis Using a Vanishing Discount Approach," Operations Research, INFORMS, vol. 59(1), pages 143-155, February.
    14. Yong Liu & Michael J. Fry & Amitabh S. Raturi, 2006. "Vertically restrictive pricing in supply chains with price‐dependent demand," Naval Research Logistics (NRL), John Wiley & Sons, vol. 53(6), pages 485-501, September.
    15. Fernando Bernstein & Fangruo Chen & Awi Federgruen, 2006. "Coordinating Supply Chains with Simple Pricing Schemes: The Role of Vendor-Managed Inventories," Management Science, INFORMS, vol. 52(10), pages 1483-1492, October.
    16. Awi Federgruen & Joern Meissner, 2009. "Competition under time‐varying demands and dynamic lot sizing costs," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(1), pages 57-73, February.
    17. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    18. A. A. Tsay & W. S. Lovejoy, 1999. "Quantity Flexibility Contracts and Supply Chain Performance," Manufacturing & Service Operations Management, INFORMS, vol. 1(2), pages 89-111.
    19. Wei Luo & Kevin Shang, 2015. "Joint Inventory and Cash Management for Multidivisional Supply Chains," Operations Research, INFORMS, vol. 63(5), pages 1098-1116, October.
    20. Albert Y. Ha, 2001. "Supplier‐buyer contracting: Asymmetric cost information and cutoff level policy for buyer participation," Naval Research Logistics (NRL), John Wiley & Sons, vol. 48(1), pages 41-64, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:navres:v:51:y:2004:i:2:p:258-274. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1520-6750 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.