Transshipment of Inventories: Dual Allocations vs. Transshipment Prices
We study a newsvendor game with transshipments, in which n retailers face a stochastic demand for an identical product. Before the demand is realized, each retailer independently orders her initial inventory. After the demand is realized, the retailers select an optimal transshipment pattern and ship residual inventories to meet residual demands. Unsold inventories are salvaged at the end of the period. We compare two methods for distribution of residual profit--transshipment prices (TPs) and dual allocations (DAs)--that were previously analyzed in literature. TPs are selected before the demand is known, and DAs, which are obtained by calculating the dual prices for the transshipment problem, are calculated after observing the true demand. We first study the conditions for the existence of the Nash equilibria under DA and then compare the performance of the two methods and show that neither allocation method dominates the other. Our analysis suggests that DAs may yield higher efficiency among "more asymmetric" retailers, whereas TPs work better with retailers that are "more alike," but the difference in profits does not seem significant. We also link expected dual prices to TPs and use those results to develop heuristics for TPs with more than two symmetric retailers. For general instances with more than two asymmetric retailers, we propose a TP agreement that uses a neutral central depot to coordinate the transshipments (TPND). Although DAs in general outperform TPND in our numerical simulations, its ease of implementation makes TPND an attractive alternative to DAs when the efficiency losses are not significant (e.g., high critical fractiles or lower demand variances).
Volume (Year): 12 (2010)
Issue (Month): 2 (February)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Xinxin Hu & Izak Duenyas & Roman Kapuscinski, 2007. "Existence of Coordinating Transshipment Prices in a Two-Location Inventory Model," Management Science, INFORMS, vol. 53(8), pages 1289-1302, August.
- Ravi Anupindi & Yehuda Bassok & Eitan Zemel, 2001. "A General Framework for the Study of Decentralized Distribution Systems," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 349-368, February.
- Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
- Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 27-41.
- Philip J. Reny, 1999. "On the Existence of Pure and Mixed Strategy Nash Equilibria in Discontinuous Games," Econometrica, Econometric Society, vol. 67(5), pages 1029-1056, September.
- Nils Rudi & Sandeep Kapur & David F. Pyke, 2001. "A Two-Location Inventory Model with Transshipment and Local Decision Making," Management Science, INFORMS, vol. 47(12), pages 1668-1680, December.
When requesting a correction, please mention this item's handle: RePEc:inm:ormsom:v:12:y:2010:i:2:p:299-318. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.