Strategic inventories in a supply chain with downstream Cournot duopoly
by Xiaowei Hu; Jaejin Jang; Nabeel Hamoud; Amirsaman Bajgiran
International Journal of Operational Research (IJOR), Vol. 42, No. 4, 2021

Abstract: The inventories carried in a supply chain as a strategic tool to influence the competing firms are considered to be strategic inventories (SI). We present a two-period game-theoretic supply chain model, in which a singular manufacturer supplies products to a pair of identical Cournot duopolistic retailers. We show that the SI carried by the retailers under dynamic contract is Pareto-dominating for the manufacturer, retailers, consumers, the channel, and the society as well. We also find that retailers' SI, however, can be eliminated when the manufacturer commits to wholesale contract or inventory holding cost is too high. In comparing the cases with and without downstream competition, we also show that the downstream Cournot duopoly undermines the profits for the retailers, but benefits all others.

Online publication date: Tue, 04-Jan-2022

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