EURO 2025 Leeds
Abstract Submission

112. Dynamic Transshipment Price Negotiations

Invited abstract in session WD-47: Game Theory in Retail II, stream Retail Operations.

Wednesday, 14:30-16:00
Room: Parkinson B08

Authors (first author is the speaker)

1. Nagihan Comez Dolgan
Faculty of Management, Ozyegin University
2. Metin Cakanyildirim
Operations Management, University of Texas at Dallas
3. Kathryn E. Stecke
Operations Management, The University of Texas at Dallas

Abstract

We study transshipments among independent retailers during a sales season and orders to suppliers are modeled. Instead of the extreme strategies of complete or no sharing, most independent retailers prefer a flexible sharing strategy that can be developed via appropriately setting endogenous transshipment prices. We dynamically study retailers’ transshipment price negotiations, and hierarchically addresses the coordination of transshipments and orders. After a stock out, retailers seek a mutually acceptable transshipment price. When no retailer has absolute power to single-handedly obtain the monetary benefit of a transshipment, retailers can negotiate.

A coordinating transshipment price interval is found for each period and inventory level at the requested retailer. A time and inventory dependent price interval, if non-empty, includes all of the coordinating transshipment prices; if empty, the transshipment is unacceptable. A bargaining framework yields a unique transshipment price from this interval. The price is either static or dynamic depending on retailer powers, but always constitutes a martingale process. To coordinate retailer orders under any negotiated prices, a mechanism whereby each retailer pays to the other retailer an extra amount for orders, called purchase cost sharing, is introduced. By adjusting the cost of a unit, the cost sharing mechanism eliminates suboptimal stocking and so coordinates retailer orders and can be made Pareto-improving.

Keywords

Status: accepted

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