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AbstractThis article investigates whether and how competing retailers should transship to each other in overlapping markets where customers encountering stock‐out at one retailer may switch to another. A two‐stage game model is used to examine the inventory and end‐of‐season transshipment decisions. We show that, instead of unconditional full‐transshipment for the case of non‐competing retailers, the stage‐2 optimal transshipment policy consists of no‐transshipment, partial‐transshipment, and full‐transshipment, determined by the interplay of switching probability, transshipment price, and remaining inventory. We find that transshipment dampens (respectively, intensifies) the inventory competition when the transshipment price is viable and below (respectively, above) a threshold. In addition to its inventory pooling effect, transshipment under competition also has a competition effect which is positive when transshipment dampens inventory competition but not too strongly. The option of bilateral transshipment leads to a Pareto improvement for competing retailers, when the competition effect is positive; but even when it is negative, Pareto improvement is still achievable for a wider transshipment price range in which the combined pooling and competition effect is positive. We identify explicitly the necessary and sufficient conditions for the existence of a unique pair of coordinating transshipment prices and provide formulas to compute them.

AbstractWe examine buyback contracts in a dyadic supply chain where a retailer orders from a supplier before observing the random demand and sets a retail price after observing it (a.k.a. price postponement). We focus on the case with linear additive demand, which is well known to be less tractable than the case with linear multiplicative demand. With mild conditions on the distribution of demand uncertainty, we derive the supplier's optimal buyback contract and show the following results. The supplier strictly prefers buyback contracts to wholesale price‐only contracts if and only if the unit production cost is lower than a threshold that depends on the dispersion of demand uncertainty; the optimal buyback rate is decreasing in the unit production cost; the profit allocation within the supply chain and channel efficiency depend on the dispersion of demand uncertainty. These results are in stark contrast to those in the case with linear multiplicative demand. Nevertheless, the relation between the operational decisions under the optimal buyback contract and those under the optimal wholesale price‐only contract is consistent with the case of multiplicative demand. We further extend the analysis to two related scenarios. On one hand, our results continue to hold in a supply chain where one supplier sells to two competing retailers. On the other hand, when the retailer does not postpone retail pricing decisions, we establish three distinctive properties of the optimal buyback contract: the supplier strictly prefers buyback contracts to wholesale price‐only contracts if and only if the unit production cost is intermediate; the optimal buyback rate is increasing in the unit production cost in the region where the supplier strictly prefers buyback contracts to wholesale price‐only contracts; price postponement benefits both the retailer and the supply chain but does not always benefit the supplier. The above analysis shows that the supplier's preference between buyback and wholesale price‐only contracts can swing either way when the retailer starts to practice price postponement.

AbstractThis paper examines a duopolistic market in which two firms compete on their positioning and pricing decisions. Consumers may be variety‐seeking or non‐variety‐seeking, and strategic or myopic, in their repeated purchases. The competing firms first determine the positioning and then the prices in two selling periods under either price commitment or dynamic pricing. Contrary to the conventional wisdom that variety‐seeking consumers are less profitable consumers, we find that firms may benefit from more variety‐seeking consumers under either pricing scheme when some of these consumers are myopic. Strategic consumer behavior always intensifies the competition and hurts the firms. Under each pricing scheme, either myopic variety‐seeking consumers or non‐variety‐seeking consumers can be the most profitable consumer group, while strategic variety‐seeking consumers are always the least preferred consumer group. Compared with dynamic pricing, price commitment softens horizontal competition and increases profits. When the firms can choose freely between price commitment and dynamic pricing before they engage in pricing competition, they may adopt asymmetric pricing schemes in equilibrium.