Inventory competition in a multi channel distribution system: The Nash and Stackelberg game

Abstract: This paper investigates inventory management in a multi channel distribution system consisting of one manufacturer and an arbitrary number of retailers that face stochastic demand. Existence of the pure Nash equilibrium is proved and parameter restriction which implies uniqueness of it is derived. Also the Stackelberg game where the manufacturer plays a roll as a leader is discussed. Under specified parameter restrictions which guarantee profitability, sufficient condition for uniqueness of Stackelberg equilibrium is obtained. In addition comparison with simultaneous move game is made. The result shows that when whole prices are equal to production cost, manufacturer carries more inventory than simultaneous move game. Keywords: Inventory management, Substitution, Nash equilibrium, Stackelberg equilibrium.