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Dynamic Competitive Newsvendors with Service-Sensitive Demands


  • Liming Liu

    () (Department of Logistics, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong)

  • Weixin Shang

    () (Department of Information and Systems Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

  • Shaohua Wu

    () (China Merchants Holdings (International) Company Limited, Shun Tak Centre, Central, Hong Kong)


When two firms compete for service-sensitive demands based on their product availability, their actions will affect the future market share reallocation. This problem was first studied by Hall and Porteus (2000) using a dynamic game model. We extend their work by incorporating a general demand model, which enables us to obtain properties that reveal the dynamics of the game and the behavior of the players. In particular, we provide conditions under which the market share of a firm has a positive value and give it an upper bound. We further extend the game competition model to an infinite-horizon setting. We prove that there exists a stationary equilibrium policy and that the dynamic equilibrium policy always converges to a stationary equilibrium policy. We demonstrate that demand patterns will dictate how firms compete rationally and show the likely outcomes of the competition.

Suggested Citation

  • Liming Liu & Weixin Shang & Shaohua Wu, 2007. "Dynamic Competitive Newsvendors with Service-Sensitive Demands," Manufacturing & Service Operations Management, INFORMS, vol. 9(1), pages 84-93, June.
  • Handle: RePEc:inm:ormsom:v:9:y:2007:i:1:p:84-93
    DOI: 10.1287/msom.1060.0123

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    References listed on IDEAS

    1. Lode Li & Yew Sing Lee, 1994. "Pricing and Delivery-Time Performance in a Competitive Environment," Management Science, INFORMS, vol. 40(5), pages 633-646, May.
    2. Lode Li, 1992. "The Role of Inventory in Delivery-Time Competition," Management Science, INFORMS, vol. 38(2), pages 182-197, February.
    3. Wang, Qinan & Parlar, Mahmut, 1994. "A three-person game theory model arising in stochastic inventory control theory," European Journal of Operational Research, Elsevier, vol. 76(1), pages 83-97, July.
    4. B. L. Schwartz, 1970. "Optimal Inventory Policies in Perturbed Demand Models," Management Science, INFORMS, vol. 16(8), pages 509-518, April.
    5. Benjamin L. Schwartz, 1966. "A New Approach to Stockout Penalties," Management Science, INFORMS, vol. 12(12), pages 538-544, August.
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    Cited by:

    1. Jiang, Li, 2012. "The implications of postponement on contract design and channel performance," European Journal of Operational Research, Elsevier, vol. 216(2), pages 356-366.
    2. repec:eee:ejores:v:271:y:2018:i:2:p:561-576 is not listed on IDEAS
    3. repec:eee:jomega:v:89:y:2019:i:c:p:242-256 is not listed on IDEAS
    4. Shi, Ye & Yu, Yugang & Wang, Lizhi, 2015. "Operational impact on the environment: Managing service systems with environmental deterioration," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 310-320.
    5. repec:eee:ejores:v:267:y:2018:i:2:p:570-584 is not listed on IDEAS
    6. Tianhu Deng & Zuo-Jun Max Shen & J. George Shanthikumar, 2014. "Statistical Learning of Service-Dependent Demand in a Multiperiod Newsvendor Setting," Operations Research, INFORMS, vol. 62(5), pages 1064-1076, October.
    7. Liberopoulos, George & Tsikis, Isidoros & Delikouras, Stefanos, 2010. "Backorder penalty cost coefficient "b": What could it be?," International Journal of Production Economics, Elsevier, vol. 123(1), pages 166-178, January.
    8. Qian, Li, 2011. "Product price and performance level in one market or two separated markets under various cost structures and functions," International Journal of Production Economics, Elsevier, vol. 131(2), pages 505-518, June.
    9. Klein, Robert & Kolb, Johannes, 2015. "Maximizing customer equity subject to capacity constraints," Omega, Elsevier, vol. 55(C), pages 111-125.
    10. Felipe Caro & Victor Martínez-de-Albéniz, 2010. "The Impact of Quick Response in Inventory-Based Competition," Manufacturing & Service Operations Management, INFORMS, vol. 12(3), pages 409-429, January.


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