Abstract: 〖The stability of retailers′ coalition with deterministic demands and existence of product defects is dealt with. A mathematical model of multiretailer ordering from a uniform supplier via forming coalition is established to obtain optimal order quantity of retailers coalition. It is shown that operational cost can be reduced due to the subadditivity of the coalition. Subsequently, proportion sharing rules are proposed to share inventory costs among retailers. By these rules, the grand coalition is a stable structure. Numerical example is presented to illustrate the rationality of the proportion sharing rules. Results are useful for retailers to decide how to form coalition with others and what operational strategies should be adopted.

Key words: cooperative coalition, defective rate, order quantity, stability