Inventory centralization with risk-averse newsvendors

Abstract

In the paper, we study the inventory centralization problem with risk-averse newsvendors using cooperative game theory. Pareto-optimality and collective rationality conditions are adopted to characterize the stable profit allocations among coalition members. Pareto-optimal profit allocation rules are derived for exponential and power utilities while the necessary and sufficient conditions are shown for stable profit allocations. We also show that the game model has a nonempty core when the exponential and power utilities are adopted to describe the risk-averse behavior.