Yalcin Akcay and Baris Tan. Assortment-Based Cooperation Among Two Make-to-Stock Producers

Abstract. Motivated by the challenges small-to-medium size companies face in export-oriented industries, we consider a competitive market for a set of substitutable products. A customer demanding a particular product arrives randomly at one of these firms and attempts to purchase her favorite product. However, if this product can
not be supplied by the visited firm, she is willing to substitute the product with her second choice with a certain probability. Hence, depending on the assortment of the firm and the substitution behavior of the customer, either a product is sold to the customer or the sales is lost. We consider the cooperation of two independent make-to-stock producers which offer a combined set of products to their customers. We study the inventory replenishment and inventory rationing problems for these two producers and provide computational results on the behavior of the optimal policies under various problem settings.