Non-cooperative joint replenishment under asymmetric information

 Non-cooperative joint replenishment under asymmetric information Evren Korpeoglu, Kemal Guler, Alper Sen HP Laboratories HPL-2013-9 inventory competition; Joint replenishment; Economic order quantity model; asymmetric information; 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 exits 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 equilibriumto 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. External Posting Date: February 21, 2013 [Fulltext] Approved for External Publication Internal Posting Date: February 21, 2013 [Fulltext] Published in European Journal of Operational Research, 2013 Copyright European Journal of Operational Research, 2013. European Journal of Operational Research 00 (2012) 1–22 EJOR Non-cooperative joint replenishment under asymmetric information Evren Körpeoğlu, Alper Şenb,∗, Kemal Güler Hewlett–Packard Laboratories, MS 1140, Palo Alto, CA 94304, USA Department of Industrial Engineering, Bilkent University, Bilkent, Ankara, 06800, Turkey Abstract Weconsider jointly replenishing n ex–ante identical firms that operate under anEOQ like setting using anon-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 exits 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.