Cooperating Among Horizontal Firms On Pricing And Inventory Management

With globalization of business and trade,many products are produced in places that are different from where they are sold.Freight cost plays a very important role in business and economic activities,and accounts for a significant portion of the total logistics cost.Especially,with the development of containerization and multi-modal transport,the freight cost of each consignment is dependent on the number of transport vehicles used and the capacity of each vehicle is limited.At the same time,the global competition is intense,the demand of the product depends on the price,and the expectation of the customers is increasing.Many companies have explored innovative collaboration strategies in efforts to improve their core competence and bottom lines.In addition,increasing numbers of firms in a variety of industries have deployed innovative pricing strategies to manage demand and improve profit.In order to reduce the logistics cost(freight cost and inventory cost)and maximize the total profit,a number of firms cooperate to effectively coordinate on pricing,inventory and transportation decisions.In this paper,there are several retailers sell a signal production and make order from a supplier,every retailer makes ordering and pricing decisions over a multi-period finite time horizon.The demand of each retailer depends on its own sale price.They may cooperate to place joint orders and keep inventory in a central warehouse and decide the price.Can collaboration strategies improve their total profit?If they cooperate to place joint orders and decide the price,how to make ordering and pricing decisions?How to allocate the profit or cost among these retailers?Firstly,this paper studies the multi-period dynamic inventory management problem with deterministic price-dependent demand and vehicle freight cost.The freight cost is proportional to the number of transport vehicles used and the capacity of each vehicle is limited.The retailer makes ordering and pricing decisions over a multi-period finite time horizon.This paper shows that the zero inventory-ordering(ZIO)property holds and the order quantity in each period is either zero or some multiple of the vehicle capacity.Based on the derived properties of the optimal policy,a polynomial algorithm is designed to solve the problem.Secondly,this paper studies the ELS game with price-dependent demand.In this game,there are several retailers that make ordering and pricing decisions over a multi-period finite time horizon.Freight cost is omitted and they may cooperate to place joint orders and keep inventory in a central warehouse.The demand of each retailer depends on its own sale price.This paper shows that collaboration strategies can improve their total profit,the ZIO property holds and a polynomial-time algorithm is given to compute the optimal total profit of the coalition.This paper proves that the ELS game with price-dependent demand is balanced and the core is non-empty in general.This paper gives a counter-example to demonstrate that the game is non-convex,and shows that the game is convex in two special cases where the retailers'demand functions are the same or where there are only two periods in the time horizon.For the former case,this paper further shows that there is a stable allocation policy among the retailers and show how to compute an allocation in the core.Finally,based on the above problems this paper studies the economic lot-sizing(ELS)game with price-dependent demand and vehicle freight cost.Several retailers form a coalition to jointly place orders to a single supplier and determine their sale prices over a multi-period finite time horizon for profit maximization.This paper shows that collaboration strategies can improve their total profit,the ZIO property holds and a polynomial-time algorithm is given to compute the optimal total profit of the coalition.This paper shows that the zero inventory-ordering(ZIO)property and the vehicle ordering property hold.Then a polynomial algorithm is given to solve the optimal total profit.Furthermore,by using Shapley value,a fairer allocation of the profit among the retailers is given.This study has theoretical and practical contribution.These results generalize the pricing strategy and cooperative strategy in inventory management application,and to supplement and enrich the theory of inventory.In addition,this paper provides a theoretical basis and scientific guide when managers make pricing and inventory decisions.