Endogenous reactive transshipment prices eliminate proactive transshipments and coordinate reactive transshipments

Abstract

This paper studies independent retailers who can cooperate with transshipments. It is the first to prove that retailers can maximize their profits with no proactive transshipments by deploying only reactive transshipments, if and only if reactive transshipment prices are endogenous. Retailers seek mutually acceptable prices for reactive transshipments. A time and inventory-dependent price interval, if non-empty, includes all of the coordinating reactive transshipment prices that yield the centralized profit; if empty, reactive transshipment is unacceptable for one of the retailers.