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Regulating Availability with Demand Uncertainty

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  • Strausz Roland

    (Free University of Berlin, Berlin, Germany)

Abstract

I evaluate a new German regulation that requires retail discounters to guarantee the availability of their products in bargain sales. The regulation is meant to prevent loss leaders. Retailers undermine the regulation’s rationale by claiming that rationing is due to demand uncertainty. This paper shows that under demand uncertainty the regulation has ambiguous welfare effects. Effectively, it raises production, which, under imperfect competition, tends to be beneficial. However, the regulation overshoots and decreases welfare if it requires availability for a state of high demand that is relatively unlikely. In this case more sophisticated regulation is required.

Suggested Citation

  • Strausz Roland, 2007. "Regulating Availability with Demand Uncertainty," German Economic Review, De Gruyter, vol. 8(1), pages 107-121, February.
    • Handle: RePEc:bpj:germec:v:8:y:2007:i:1:p:107-121
    DOI: 10.1111/j.1468-0475.2007.00136.x
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    Cited by:

    1. Antonio Rosato, 2016. "Selling substitute goods to loss-averse consumers: limited availability, bargains, and rip-offs," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 709-733, August.

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