An Overview of Cost Allocation in Newsvendor Inventory Centralization

Professor Moshe Dror

ABSTRACT

Consider a set of n stores with single item and single period demands with an option of centralized ordering a Newsvendor setting (inventory with holding and penalty costs only). In this case, a ‘centralization’ game requires allocation of cost. In this talk we will review past results: examine (i) the conditions under which such an inventory centralization game has a nonempty core, and (ii) cost optimization of the centralized inventory operation as a function of the covariance matrix. In this setting one unresolved issue is that of cost allocation in response to demand realizations.