Game theoretic analysis of an inventory problem with substitution, stochastic demand, and uncertain supply

Tugce Martagan, Burak Eksioglu

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

A game theoretic approach is used to analyse an inventory problem with two products, stochastic demand, and uncertain supply. The supply chain analysed includes two competing retailers selling two substitutable products and those retailer' suppliers. Retailers face stochastic demand and replenish the inventory from the suppliers. However, both suppliers provide an indeterminate fraction of the quantity requested, due to randomness in capacity and quality. Some customers with unmet demand will substitute that product with one sold by the other retailer. We assume that the retailers are rational players with conflicting objectives. We model the retailers' single period expected payoffs and identify the ordering decisions using Nash strategy. We prove the existence and uniqueness of the Nash solution, and provide results for numerical examples. We analyse the combined impact of product substitution and supply uncertainty on the retailers. Results suggest that supply uncertainties do not always hurt retailers' expected payoffs.
Original languageEnglish
Pages (from-to)27-43
JournalInternational Journal of Inventory Research
Volume2
Issue number1/2
DOIs
Publication statusPublished - 2013
Externally publishedYes

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Retailers
Stochastic demand
Substitution
Suppliers
Supply uncertainty
Supply chain
Nash solution
Randomness
Uniqueness
Substitute
Product substitution

Cite this

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Game theoretic analysis of an inventory problem with substitution, stochastic demand, and uncertain supply. / Martagan, Tugce; Eksioglu, Burak.

In: International Journal of Inventory Research, Vol. 2, No. 1/2, 2013, p. 27-43.

Research output: Contribution to journalArticleAcademicpeer-review

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