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Competition and collaboration in service parts management systems

Usta, Meriçcan
Inventory management policies of two independent dealers in a service parts system with transshipment is studied in this thesis. Dealers can collaborate by pooling inventory or service. Revenue is shared in transshipment, can sometimes be contrary to profit maximization of one of the parties albeit sum of profits is increased. To assess the benefits of inventory pooling under equilibrium strategies, and the effect of competition on profits, a Markov Decision Process is formulated. A simpler variant of the optimal four-index threshold policy is used to characterize the production, service and transshipment related inventory decisions. A game theoretical approach as well as notions from policy iteration is taken to find the best response policy and equilibrium policies of the dealers. Numerical study is conducted to investigate the effect of cost, revenue and demand parameters, as well as dealer asymmetricities on benefit of pooling, service levels and transshipment flows. Analysis shows that commission schemes fairly allocating transshipment value to the players, high customer traffic intensities, and low transshipment costs are most suited environments for pooling. System centralization is beneficial when the inventory holding costs are high, transshipment costs are low, customer traffic intensities are high or the commission structure is distracting a party. Competition, within the experimental settings, dampens about 45% of the benefits of pooling.