Inventory pooling (sharing) is a well-known strategy for reducing the negative effect of demand uncertainty. As a risk-pooling strategy, its rationale is analogous to those of banking and insurance. Recently there has been interest in extending the idea of inventory pooling to independent firms, such as airlines using the same hub deciding to pool spare parts that are needed only rarely.
We consider the effectiveness of partial inventory pooling, whereby only a certain proportion of the inventory is pooled. We make use of a scheme, previously proposed in the context of complete inventory pooling, where each firm contributes to a pool, as well as ordering for itself. A firm then has priority for units it contributed to the pool, but the units it does not need become available to the other firm, possibly at cost. We analyze the resulting non-cooperative game. We consider an example with discrete independent demands, and then explore a symmetric continuous independent demands model, eventually specialized to uniform distributions.
This work is joint with Dr. Lena Silbermayr of WU Vienna.