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Submitted to Operations Research Inventory Competition under Fixed Order Costs
 

Summary: Submitted to Operations Research
Inventory Competition under Fixed Order Costs
Ashkan Zeinalzadeh
Department of Electrical Engineering, University of Hawaii at M¯anoa, 2540 Dole Street, Honolulu, HI 96822, USA,
ashkan@hawaii.edu
Aydin Alptekinoglu
Edwin L. Cox School of Business, Southern Methodist University, 6212 Bishop Boulevard, Dallas, TX 75275, USA,
aalp@smu.edu
G¨urdal Arslan
Department of Electrical Engineering, University of Hawaii at M¯anoa, 2540 Dole Street, Honolulu, HI 96822, USA,
gurdal@hawaii.edu
We consider single- and multiple-period inventory competition between two firms that can replenish their
inventories only at a positive fixed order cost. What ties their replenishment decisions strategically is the
customers' substitution behavior: a fixed percentage of customers facing shortages in one firm attempts
to buy from the other firm. Our main contribution is to show that both multiple periods and fixed order
costs fundamentally impact whether there is an equilibrium. (We consider only pure Markov strategies
and focus exclusively on equilibrium behavior that is also subgame perfect, as does the extant literature.)
Single-period game with fixed order costs always has an equilibrium, whereas the multiple-period game may
not. In contrast, equilibrium has been shown to exist in the absence of fixed order costs in single-period
(Parlar 1988) and infinite-horizon settings (Avsar and Baykal-Gursoy 2002); to the best of our knowledge,

  

Source: Arslan, Gürdal - Department of Electrical Engineering, University of Hawai'i at Manoa

 

Collections: Engineering