Inventory competition for perishable product in hybrid distribution system

Consider a hybrid distribution system under stochastic demand. This paper analyzes the inventory competition between traditional channel and direct channel as a result of the channel substitution for the same product. The unique existence of pure-strategy Nash equilibrium is proved and the impacts of wholesale price and the channel substitution rate on competition outcome are analyzed. In addition, this paper also prove that there exists the optimal stocking levels to maximize the expected profit of the whole system, and discloses the system inefficiency by comparing them to competition outcome. Finally, a numerical example shows the validity of these results and illustrates the impacts of related factors on retailer and manufacture revenues.