Non-cooperative joint replenishment under asymmetric information

Date
2013
Authors
Körpeoğlu, E.
Şen, A.
Güler, K.
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Source Title
European Journal of Operational Research
Print ISSN
0377-2217
Electronic ISSN
1872-6860
Publisher
Elsevier
Volume
227
Issue
3
Pages
434 - 443
Language
English
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Abstract

We consider jointly replenishing n ex-ante identical firms that operate under an EOQ like setting using a non-cooperative game under asymmetric information. In this game, each firm, upon being privately informed about its demand rate (or inventory cost rate), submits a private contribution to an intermediary that specifies how much it is willing to pay for its replenishment per unit of time and the intermediary determines the maximum feasible frequency for the joint orders that would finance the fixed replenishment cost. We show that a Bayesian Nash equilibrium exists and characterize the equilibrium in this game. We also show that the contributions are monotone increasing in each firm's type. We finally conduct a numerical study to compare the equilibrium to solutions obtained under independent and cooperative ordering, and under full information. The results show that while information asymmetry eliminates free-riding in the contributions game, the resulting aggregate contributions are not as high as under full information, leading to higher aggregate costs.

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