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Capacity allocation with traditional and Internet channels

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  • Yue Dai
  • Xiuli Chao
  • Shu‐Cherng Fang
  • Henry L.W. Nuttle

Abstract

In this paper we study a capacity allocation problem for two firms, each of which has a local store and an online store. Customers may shift among the stores upon encountering a stockout. One question facing each firm is how to allocate its finite capacity (i.e., inventory) between its local and online stores. One firm's allocation affects the decision of the rival, thereby creating a strategic interaction. We consider two scenarios of a single‐product single‐period model and derive corresponding existence and stability conditions for a Nash equilibrium. We then conduct sensitivity analysis of the equilibrium solution with respect to price and cost parameters. We also prove the existence of a Nash equilibrium for a generalized model in which each firm has multiple local stores and a single online store. Finally, we extend the results to a multi‐period model in which each firm decides its total capacity and allocates this capacity between its local and online stores. A myopic solution is derived and shown to be a Nash equilibrium solution of a corresponding “sequential game.” © 2006 Wiley Periodicals, Inc. Naval Research Logistics, 2006

Suggested Citation

  • Yue Dai & Xiuli Chao & Shu‐Cherng Fang & Henry L.W. Nuttle, 2006. "Capacity allocation with traditional and Internet channels," Naval Research Logistics (NRL), John Wiley & Sons, vol. 53(8), pages 772-787, December.
    • Handle: RePEc:wly:navres:v:53:y:2006:i:8:p:772-787
    DOI: 10.1002/nav.20168
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    References listed on IDEAS

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    1. Yue Dai & Xiuli Chao & Shu-Cherng Fang & Henry L. W. Nuttle, 2006. "Capacity Allocation And Inventory Policy In A Distribution System," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 23(04), pages 543-571.
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    Cited by:

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    3. Jian Zhang & Shuang He & Juliang Zhang & T. C. Edwin Cheng, 2020. "Purchase and retrieval competition for seasonal produce," Naval Research Logistics (NRL), John Wiley & Sons, vol. 67(3), pages 161-184, April.

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