Economics at your fingertips  

Swapping inventory between competing firms

Seung Jae Park

International Journal of Production Economics, 2018, vol. 199, issue C, 26-46

Abstract: In this study, we investigate how competing firms swap inventory. We consider two firms located in two different markets that produce the same type of product. Each firm sells in the two markets. The selling price in each market is determined by the selling quantities of the two firms. We first show that the optimal swapping quantity is zero when firms decide to swap inventory without a sophisticated method. That is, they would not swap inventory. However, under our proposed inventory swapping method, competing firms swap a positive amount of inventory, enabling a higher profit for both firms. We also find that the swapped quantity increases as transportation costs decrease, and swapping inventory may not be beneficial if the transportation cost is either too low or too high. In addition, we investigate how to implement the swapping inventory agreement when the value of the swapped inventory differs by market. We show that firms may prefer to return the physical products to pay the value difference, especially if they are risk-averse.

Keywords: Inventory swapping; Competition; Cooperation (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

International Journal of Production Economics is currently edited by R. W. Grubbström

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2018-05-05
Handle: RePEc:eee:proeco:v:199:y:2018:i:c:p:26-46