Capacity choice and allocation: strategic behavior and supply chain performance. (English) Zbl 1231.90012

Summary: We consider a simple supply chain in which a single supplier sells to several downstream retailers. The supplier has limited capacity, and retailers are privately informed of their optimal stocking levels. If retailer orders exceed available capacity, the supplier allocates capacity using a publicly known allocation mechanism, a mapping from retailer orders to capacity assignments. We show that a broad class of mechanisms are prone to manipulation: Retailers will order more than they need to gain a more favorable allocation. Another class of mechanisms induces the retailers to order exactly their needs, thereby revealing their private information. However, there does not exist a truth-inducing mechanism that maximizes total retailer profits.


90B05 Inventory, storage, reservoirs
91A80 Applications of game theory
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