Dynamic inventory and pricing models for competing retailers

We address infinite‐horizon models for oligopolies with competing retailers under demand uncertainty. We characterize the equilibrium behavior which arises under simple wholesale pricing schemes. More specifically, we consider a periodic review, infinite‐horizon model for a two‐echelon system with a single supplier servicing a network of competing retailers. In every period, each retailer faces a random demand volume, the distribution of which depends on his own retail price as well as those charged by possibly all competing retailers. We also derive various comparative statics results regarding the impact several exogenous system parameters (e.g., cost or distributional parameters) have on the equilibrium decisions of the retailers as well as their expected profits. We show that certain monotonicity properties, engrained in folklore as well as in known inventory models for centralized systems, may break down in decentralized chains under retailer competition. Our results can be used to optimize the aggregate profits in the supply chain (i.e., those of the supplier and all retailers) by implementing a specific wholesale pricing scheme. © 2003 Wiley Periodicals, Inc. Naval Research Logistics, 2004.

[1]  P. Samuelson,et al.  Foundations of Economic Analysis. , 1948 .

[2]  Jr. Arthur F. Veinott.  On the Opimality of $( {s,S} )$ Inventory Policies: New Conditions and a New Proof , 1966 .

[3]  M. J. Sobel,et al.  DYNAMIC OLIGOPOLY WITH INVENTORIES , 1974 .

[4]  Jennifer F. Reinganum.  Uncertain Innovation and the Persistence of Monopoly , 1982 .

[5]  Richard Schmalensee,et al.  Advertising and Entry Deterrence: An Exploratory Model , 1983, Journal of Political Economy.

[6]  Dun Bradstreet Credit Services.QDun Bradstreet Credit Services..  Industry norms and key business ratios. , 1983 .

[7]  D. Fudenberg,et al.  The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look , 1984 .

[8]  J. Geanakoplos,et al.  Multimarket Oligopoly: Strategic Substitutes and Complements , 1985, Journal of Political Economy.

[9]  Awi Federgruen,et al.  An Inventory Model with Limited Production Capacity and Uncertain Demands II. The Discounted-Cost Criterion , 1986, Math. Oper. Res..

[10]  Awi Federgruen,et al.  An Inventory Model with Limited Production Capacity and Uncertain Demands I. The Average-Cost Criterion , 1986, Math. Oper. Res..

[11]  George Hendrikse,et al.  The Theory of Industrial Organization , 1989 .

[12]  Paul R. Milgrom,et al.  Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities , 1990 .

[13]  Evan L. Porteus,et al.  Chapter 7.( TGM) Supply Contracts with Quantity Commitments and Stochastic Demand by Ravi Annupindi & Yehuda Bassok Chapter 8. ( TGM) Supply Chain Contracting and Coordination with Stochastic Demand , 1996 .

[14]  J. Birge,et al.  Setting Single-Period Optimal Capacity Levels and Prices for Substitutable Products , 1998 .

[15]  G. Ryzin,et al.  Retail inventories and consumer choice , 1999 .

[16]  Jan A. Van Mieghem,et al.  Price Versus Production Postponement: Capacity and Competition , 1999 .

[17]  Gérard P. Cachon.  Competitive Supply Chain Inventory Management , 1999 .

[18]  Awi Federgruen,et al.  Combined Pricing and Inventory Control Under Uncertainty , 1999, Oper. Res..

[19]  X. Vives.  Oligopoly Pricing: Old Ideas and New Tools , 1999 .

[20]  S. Nahmias,et al.  Modeling Supply Chain Contracts: A Review , 1999 .

[21]  Paul H. Zipkin,et al.  Foundations of Inventory Management , 2000 .

[22]  Awi Federgruen,et al.  Coordination Mechanisms for a Distribution System with One Supplier and Multiple Retailers , 2001, Manag. Sci..

[23]  Awi Federgruen,et al.  Near-Optimal Pricing and Replenishment Strategies for a Retail/Distribution System , 2001, Oper. Res..

[24]  Terry A. Taylor,et al.  Supply Chain Coordination Under Channel Rebates with Sales Effort Effects , 2002, Manag. Sci..

[25]  Fernando Bernstein,et al.  Pricing and Replenishment Strategies in a Distribution System with Competing Retailers , 2003, Oper. Res..

[26]  Fernando Bernstein,et al.  Comparative statics, strategic complements and substitutes in oligopolies , 2004 .

[27]  Fernando Bernstein,et al.  Decentralized Supply Chains with Competing Retailers Under Demand Uncertainty , 2005, Manag. Sci..