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The Effects Of Capacity On Sales Under Alternative Vertical Contracts

Author

Listed:
  • IOANNIS IOANNOU
  • JULIE HOLLAND MORTIMER
  • RICHARD MORTIMER

Abstract

Retailer capacity decisions can impact sales for products by affecting, for example, availability and visibility. Using data from the U.S. video rental industry, we report estimates of the effect of capacity on sales. New monitoring technologies facilitated new supply contracts in this industry, which lowered the upfront costs of capacity and required minimum capacity purchases, strongly impacting stocking decisions. Under the traditional supply contract, capacity costs $44 per tape (avg) and the marginal tape produces 10.4 to 18.0 additional rentals. Under the new contract, capacity costs $7 per tape (avg) and the marginal tape produces 0 to 4.9 additional rentals.
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Suggested Citation

  • Ioannis Ioannou & Julie Holland Mortimer & Richard Mortimer, 2011. "The Effects Of Capacity On Sales Under Alternative Vertical Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 59(1), pages 117-154, March.
    • Handle: RePEc:bla:jindec:v:59:y:2011:i:1:p:117-154
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    Cited by:

    1. Jordi McKenzie, 2023. "The economics of movies (revisited): A survey of recent literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 480-525, April.
    2. Mingzheng Wang & Mengru Ma & Xiaohang Yue & Samar Mukhopadhyay, 2016. "A capacitated firm’s pricing strategies for strategic consumers with different search costs," Annals of Operations Research, Springer, vol. 240(2), pages 731-760, May.
    3. Harish Krishnan & Ralph A. Winter, 2010. "Inventory Dynamics and Supply Chain Coordination," Management Science, INFORMS, vol. 56(1), pages 141-147, January.
    4. Robert P. Rooderkerk & Harald J. van Heerde & Tammo H. A. Bijmolt, 2013. "Optimizing Retail Assortments," Marketing Science, INFORMS, vol. 32(5), pages 699-715, September.

    More about this item

    JEL classification:

    • L0 - Industrial Organization - - General

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