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Repeated Newsvendor Game with Transshipments

In: Handbook of Newsvendor Problems

Author

Listed:
  • Xiao Huang

    (Concordia University)

  • Greys Sošić

    (University of Southern California)

Abstract

We study a repeated newsvendor game with transshipments. In every period n, retailers face a stochastic demand for an identical product and independently place their inventory orders before demand realization. After observing the actual demand, each retailer decides how much of her leftover inventory or unsatisfied demand she wants to share with the other retailers. Residual inventories are then transshipped in order to meet residual demands, and dual allocations are used to distribute residual profit. Unsold inventories are salvaged at the end of the period. While in a single-shot game retailers in an equilibrium withhold their residuals, we show that it is a subgame-perfect Nash equilibrium for the retailers to share all of the residuals when the discount factor is large enough and the game is repeated infinitely many times. We also study asymptotic behavior of the retailers’ order quantities and discount factors when n is large. Finally, we provide conditions under which a system-optimal solution can be achieved in a game with n retailers, and develop a contract for achieving a system-optimal outcome when these conditions are not satisfied. This chapter is based on Huang and Sošić (European Journal of Operational Research 204(2):274–284, 2010).

Suggested Citation

  • Xiao Huang & Greys Sošić, 2012. "Repeated Newsvendor Game with Transshipments," International Series in Operations Research & Management Science, in: Tsan-Ming Choi (ed.), Handbook of Newsvendor Problems, edition 127, chapter 0, pages 103-136, Springer.
    • Handle: RePEc:spr:isochp:978-1-4614-3600-3_4
    DOI: 10.1007/978-1-4614-3600-3_4
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