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A Two-Location Inventory Model with Transshipment and Local Decision Making

Nils Rudi (), Sandeep Kapur and David F. Pyke ()
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Nils Rudi: The Simon School, University of Rochester, Rochester, New York 14627
David F. Pyke: The Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755

Management Science, 2001, vol. 47, issue 12, 1668-1680

Abstract: In situations where a seller has surplus stock and another seller is stocked out, it may be desirable to transfer surplus stock from the former to the latter. We examine how the possibility of such transshipments between two independent locations affects the optimal inventory orders at each location. If each location aims to maximize its own profits---we call this local decision making---their inventory choices will not, in general, maximize joint profits. We find transshipment prices which induce the locations to choose inventory levels consistent with joint-profit maximization.

Keywords: Transshipments; Newsvendor Model; Nash Equilibrium (search for similar items in EconPapers)
Date: 2001
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