Non-Cooperative Joint Replenishment Under Asymmetric Information

Posted: 18 Aug 2012

See all articles by Evren Körpeoğlu

Evren Körpeoğlu

Hewlett-Packard Laboratories

Alper Şen

Bilkent University

Kemal Güler

Hewlett-Packard Laboratories

Date Written: August 17, 2012

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 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.

Keywords: Joint replenishment, Economic Order Quantity model, Non-cooperative game theory, Information asymmetry

JEL Classification: C72, M11, D82

Suggested Citation

Korpeoglu, Evren and Sen, Alper and Guler, Kemal, Non-Cooperative Joint Replenishment Under Asymmetric Information (August 17, 2012). Available at SSRN: https://ssrn.com/abstract=2131098 or http://dx.doi.org/10.2139/ssrn.2131098

Evren Korpeoglu

Hewlett-Packard Laboratories ( email )

1501 Page Mill Road
Palo Alto, CA 94304
United States

Alper Sen (Contact Author)

Bilkent University ( email )

Department of Industrial Engineering
Faculty of Engineering
Bilkent, Ankara 06800
Turkey

Kemal Guler

Hewlett-Packard Laboratories ( email )

1501 Page Mill Road
Palo Alto, CA 94304
United States

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