We consider a firm that invests in capacity under demand uncertainty and thus faces two related but distinct types of risk: mismatch between capacity and demand and profit variability. Whereas mismatch risk can be mitigated with greater operational flexibility, profit variability can be reduced...

Internet companies extensively use the practice of drop-shipping, where the wholesaler stocks and owns the inventory and ships products directly to customers at retailers' request. Under the drop-shipping arrangement, the supply chain benefits from risk pooling because the inventory for multiple...

This paper considers two independent firms that invest in resources such as capacity or inventory based on imperfect market forecasts. As time progresses and new information becomes available, the firms update their forecasts and have the option to trade their resources. The trade contract is...

Internet technology has allowed for a higher degree of decoupling between the information-intensive sales process and the physical process of inventory management than its brick-and-mortar counterpart. As a result, some Internet retailers choose to outsource inventory and back-end operations to...

This paper studies how transshipments affect manufacturers and retailers, considering both exogenous and endogenous wholesale prices. For a distribution system where a single manufacturer sells to multiple identical-cost retailers, we consider both the manufacturer being a price taker and the...

In situations where a seller has surplus stock and another seller is stocked out, it may be desirable to transfer surplus stock from the former to the latter. We examine how the possibility of such transshipments between two independent locations affects the optimal inventory orders at each...