Why Do We Observe Stockless Operations on the Internet? Stockless Operations Under Competition
Article first published online: 12 FEB 2009
© 2008 Production and Operations Management Society
Production and Operations Management
Volume 17, Issue 2, pages 139–149, March-April 2008
How to Cite
Sun, D., Ryan, J. K. and Shin, H. (2008), Why Do We Observe Stockless Operations on the Internet? Stockless Operations Under Competition. Production and Operations Management, 17: 139–149. doi: 10.3401/poms.1080.0012
- Issue published online: 12 FEB 2009
- Article first published online: 12 FEB 2009
- Received: February 2006; Revised: September 2006 and April 2007; Accepted: May 2007 by Amiya Chakravarty.
- online retailing;
- stockless operation;
- duopoly competition;
- inventory management
Due to the proliferation of electronic commerce and the development of Internet technologies, many firms have considered new pricing-inventory models. In this paper, we study the role of stockless (i.e., zero-inventory) operations in online retailing by a considering duopoly competition in which two retailers compete to maximize profit by jointly optimizing their pricing and inventory decisions. In our model, the retailers are allowed to choose either an in-stock policy or stockless operations with a discounted price. We first present the characteristics and properties of the equilibrium. We then demonstrate that the traditional outcome of asymmetric Bertrand competition is observed under head-to-head competition. However, when the two firms choose different operational policies, with corresponding optimal pricing, they can share the market under certain conditions. Finally, we report interesting observations on the interaction between pricing and inventory decisions obtained from an extensive computational study.