| dc.description.abstract |
Transshipment allows for inventory sharing of a product between locations when there is sufficient demand for that product. The most common advantage identified in the literature from a transshipment system is that it allows for lower stock levels to be held at all locations, thus reducing inventory holding costs. The interaction of incentives between quantity discounts and transshipment agreements has not been studied in the past and leads to significant new insights into the behavior of suppliers and retailers. Using the two-block tariff quantity discount price structure in a transshipment model results in the two retailers having four potential equilibrium quantity combinations to consider, rather than just one when the supplier does not offer a pricing contract with a quantity discount. Two of the potential retailer equilibrium combinations have symmetric retailer ordering quantities, while the other two potential retailer equilibrium combinations have non-symmetric ordering quantities. This is in spite of otherwise symmetric cost and demand parameters. The quantity discount cost parameters chosen by the supplier are the base unit price, the discounted unit price and the discount triggering quantity. Strategically, the supplier should choose the pricing parameters within a range so that the retailers have a non-symmetric equilibrium to consider, since this can lead to the highest profits for the supplier. Also, the supplier must carefully choose the triggering quantity within the range that contains the non-symmetric equilibrium so that the retailers have equal profits, allowing the equilibrium to exist. We find that the supplier’s profit will increase when the value of base price is as large as is feasible and the value of the discounted price is as small as is feasible. Decreasing the value of the discounted price also increases each retailer’s profit, while increasing the value of the base price decreases each retailer’s profit. |
|
