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Stability and Endogenous Formation of Inventory Transshipment Networks

Author

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  • Xin Fang

    (Lee Kong Chian School of Business, Singapore Management University, Singapore 178899)

  • Soo-Haeng Cho

    (Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Abstract

This paper studies a cooperative game of inventory transshipment among multiple firms. In this game, firms first make their inventory decisions independently and then decide collectively how to transship excess inventories to satisfy unmet demands. In modeling transshipment, we use networks of firms as the primitive, which offer a richer representation of relationships among firms by taking the coalitions used in all previous studies as special cases. For any given cooperative network, we construct a dual price allocation under which the network is stable for any residual demands and supplies in the sense that no firms find it more profitable to form subnetworks. Under the allocation based on the marginal contribution of each firm to its network (called the MJW value), we show that various network structures such as complete, hub-spoke, and chain networks are stable only under certain conditions on residual amounts. Moreover, these conditions differ across network structures, implying that a network structure plays an important role in establishing the stability of a decentralized transshipment system. Finally, we consider the case when firms establish networks endogenously, and show that pairwise Nash stable networks underperform the corresponding networks in centralized systems.

Suggested Citation

  • Xin Fang & Soo-Haeng Cho, 2014. "Stability and Endogenous Formation of Inventory Transshipment Networks," Operations Research, INFORMS, vol. 62(6), pages 1316-1334, December.
  • Handle: RePEc:inm:oropre:v:62:y:2014:i:6:p:1316-1334
    DOI: 10.1287/opre.2014.1324
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jiahua Zhang & Shu-Cherng Fang & Yifan Xu, 2018. "Inventory centralization with risk-averse newsvendors," Annals of Operations Research, Springer, vol. 268(1), pages 215-237, September.
    2. Ichiro Nishizaki & Tomohiro Hayashida & Shinya Sekizaki & Kenta Tanaka, 2023. "Averaged dual solution for linear production games and its characterization," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 31(2), pages 523-555, June.
    3. Ziteng Wang & Yue Dai & Shu‐Cherng Fang & Zhong‐Zhong Jiang & Yifan Xu, 2020. "Inventory transshipment game with limited supply: Trap or treat," Naval Research Logistics (NRL), John Wiley & Sons, vol. 67(6), pages 383-403, September.
    4. Xiaomeng Guo & Yunjuan Kuang & Chi To Ng, 2023. "To centralize or decentralize: Mergers under price and quality competition," Production and Operations Management, Production and Operations Management Society, vol. 32(3), pages 844-862, March.
    5. Fang Fang & Harihara Prasad Natarajan, 2020. "Sourcing and Procurement Cost Allocation in Multi‐Division Firms," Production and Operations Management, Production and Operations Management Society, vol. 29(3), pages 767-787, March.
    6. Ji, Xiang & Sun, Jiasen & Wang, Zebin, 2017. "Turn bad into good: Using transshipment-before-buyback for disruptions of stochastic demand," International Journal of Production Economics, Elsevier, vol. 185(C), pages 150-161.
    7. Yuhong He & Shuya Yin, 2015. "Joint Selling of Complementary Components Under Brand and Retail Competition," Manufacturing & Service Operations Management, INFORMS, vol. 17(4), pages 470-479, October.
    8. Bruce C. Hartman, 2018. "Sharing Loading Costs for Multi Compartment Vehicles," Games, MDPI, vol. 9(2), pages 1-21, May.
    9. Xin Fang & Soo-Haeng Cho, 2020. "Cooperative Approaches to Managing Social Responsibility in a Market with Externalities," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1215-1233, November.
    10. Ichiro Nishizaki & Tomohiro Hayashida & Shinya Sekizaki & Kojiro Furumi, 2023. "A two-stage linear production planning model with partial cooperation under stochastic demands," Annals of Operations Research, Springer, vol. 320(1), pages 293-324, January.
    11. Soo-Haeng Cho & Xin Wang, 2017. "Newsvendor Mergers," Management Science, INFORMS, vol. 63(2), pages 298-316, February.

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