Bilateral transshipment between competing retailers

Qi FU, Liming LIU*, Weixin SHANG

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review


This article investigates whether and how competing retailers should transship to each other in overlapping markets where customers encountering stock-out at one retailer may switch to another. A two-stage game model is used to examine the inventory and end-of-season transshipment decisions. We show that, instead of unconditional full-transshipment for the case of non-competing retailers, the stage-2 optimal transshipment policy consists of no-transshipment, partial-transshipment, and full-transshipment, determined by the interplay of switching probability, transshipment price, and remaining inventory. We find that transshipment dampens (respectively, intensifies) the inventory competition when the transshipment price is viable and below (respectively, above) a threshold. In addition to its inventory pooling effect, transshipment under competition also has a competition effect which is positive when transshipment dampens inventory competition but not too strongly. The option of bilateral transshipment leads to a Pareto improvement for competing retailers, when the competition effect is positive; but even when it is negative, Pareto improvement is still achievable for a wider transshipment price range in which the combined pooling and competition effect is positive. We identify explicitly the necessary and sufficient conditions for the existence of a unique pair of coordinating transshipment prices and provide formulas to compute them.
Original languageEnglish
Number of pages13
JournalNaval Research Logistics (NRL)
Publication statusE-pub ahead of print - 18 Mar 2023

Bibliographical note

The authors are very grateful to the editor-in-chief, the department editor, the associate editor, and two anonymous referees for their valuable comments and suggestions, which have significantly helped improve the quality of this article. Qi Fu was supported in part by the University of Macau (Grants MYRG2017-00169-FBA andMYRG2020-00256-FBA). Weixin Shang was supported by the Research Grants Council of Hong Kong (GRF Project LU13501617).


  • bilateral transshipment
  • competition effect
  • coordinating transshipment prices
  • customer switching
  • Pareto improvement
  • pooling effect

Cite this