The Relation between Inventory Investment and Price Dynamics in a Distributive Firm
AbstractIn this paper, we examine the role of inventory in the price-setting behavior of a distributive firm. Empirically, we show that probability of price change has a positive relation to the scale of the retailer’s storage and the frequency of its bargain sales. We also show a negative relation between the frequency of bargain sales and the price elasticity of demand. These results denote that price stickiness varies by the retailers’ characteristics. In this paper, we consider that the hidden mechanism of price stickiness comes from the retailer’s policy for inventory investment. We develop a partial equilibrium model of the retailer’s optimization behavior with inventory and financial restrictions. The results of the numerical experiments suggest that price change frequency depends on the retailer’s order cost, storage cost, and menu cost.
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Bibliographic InfoPaper provided by Research Center for Price Dynamics, Institute of Economic Research, Hitotsubashi University in its series Research Center for Price Dynamics Working Paper Series with number 8.
Length: 26 p.
Date of creation: Apr 2013
Date of revision:
Note: April, 2013
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More information through EDIRC
Inventory; Price Stickiness; Numerical Experiment; (S; s) Policy;
Find related papers by JEL classification:
- D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
- E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-05 (All new papers)
- NEP-BEC-2013-05-05 (Business Economics)
- NEP-CMP-2013-05-05 (Computational Economics)
- NEP-COM-2013-05-05 (Industrial Competition)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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