Assortment-based cooperation between two make-to-stock firms

Abstract

Cooperation can potentially improve competitiveness and profitability of firms with limited resources and production capacities. This article presents a continuous-time Markov chain model to study an assortment-based cooperation between two independent firms with limited capacity. An assortment-based cooperation is an agreement to combine the product assortments of two firms and offer the combined assortment to each firm's customers. Both centralized and decentralized cooperations are studied. In a centralized cooperation, firms jointly make replenishment decisions, whereas in the decentralized case, firms operate under independent base stock policies and manage product exchanges through a d..