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A General Framework for the Study of Decentralized Distribution Systems

Author

Listed:
  • Ravi Anupindi

    () (Stern School of Business, New York University, New York, New York 10012)

  • Yehuda Bassok

    () (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

  • Eitan Zemel

    () (Stern School of Business, New York University, New York, New York 10012)

Abstract

We develop a general framework for the analysis of decentralized distribution systems. We carry the analysis in terms of a simplified model which entails N retailers who face stochastic demands and hold stocks locally and/or at one or more central locations. An exogenously specified fraction of any unsatisfied demand (demand greater than locally available stock) at a retailer could be satisfied using excess stocks at other retailers and/or stocks held at a central location. We consider inventory ordering and allocation decisions. The operational decisions of inventory and allocation of stocks and the financial decision of allocation of revenues/costs must be made in a way consistent with the individual incentives of the various independent retailers. We develop a "coopetitive" framework for the sequential decisions of inventory and allocation. We introduce the notion of claims that allows us to separate the ownership (with decision rights) and the location of inventories in the system. For the cooperative shipping and allocation decision, we use the concept of core and develop sufficient conditions for the existence of the core. For the inventory decision, we develop conditions for the existence of a pure strategy Nash Equilibrium. For this decentralized system, we show that there exists an allocation mechanism that achieves the first-best solution for inventory deployment and allocation. We develop conditions under which the first-best equilibrium will be unique. Our model can be easily generalized to include complicated ownership structures such as "super dealers," partnerships, "inventory speculators," and situations in retail e-commerce settings such as "click-through arrangements," separation of "demand generators," and "fulfillment houses," etc. It can also be applied to situations involving capacity allocations and product substitutions.

Suggested Citation

  • 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.
  • Handle: RePEc:inm:ormsom:v:3:y:2001:i:4:p:349-368
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    File URL: http://dx.doi.org/10.1287/msom.3.4.349.9973
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    References listed on IDEAS

    as
    1. Chandrasekhar Das, 1975. "Supply and Redistribution Rules for Two-Location Inventory Systems: One-Period Analysis," Management Science, INFORMS, vol. 21(7), pages 765-776, March.
    2. Adam Brandenburger & Harborne Stuart, 2007. "Biform Games," Management Science, INFORMS, vol. 53(4), pages 537-549, April.
    3. Roy Radner & Tatsuro Ichiishi, 1999. "A profit-center game with incomplete information," Review of Economic Design, Springer;Society for Economic Design, vol. 4(4), pages 307-343.
    4. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    5. GĂ©rard P. Cachon & Paul H. Zipkin, 1999. "Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain," Management Science, INFORMS, vol. 45(7), pages 936-953, July.
    6. Gary D. Eppen, 1979. "Note--Effects of Centralization on Expected Costs in a Multi-Location Newsboy Problem," Management Science, INFORMS, vol. 25(5), pages 498-501, May.
    7. Steven A. Lippman & Kevin F. McCardle, 1997. "The Competitive Newsboy," Operations Research, INFORMS, vol. 45(1), pages 54-65, February.
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