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Storability, Market Structure, and Demand-Shift Incentives

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Listed:
  • James J. Anton

    () (Duke University)

  • Gopal Das Varma

    () (CRA International)

Abstract

We consider a two-period model in which buyers can store a good by purchasing in advance of consumption so as to realize potential gains from intertemporal arbitrage. We find that storability introduces a kink in the aggregate period-1 demand. When supply is oligopolistic (quantity setting) and consumers are sufficiently patient (storage cost is relatively low), each firm has a strong current incentive to capture future market share from a rival. As a result, in equilibrium, the price path is increasing and there is rational in-advance purchase by buyers. In contrast, the monopoly and perfectly competitive markets exhibit no such price dynamics. Intermediate storage costs result in multiple equilibria, with at least one that involves advance purchase and one that does not.

Suggested Citation

  • James J. Anton & Gopal Das Varma, 2005. "Storability, Market Structure, and Demand-Shift Incentives," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 520-543, Autumn.
  • Handle: RePEc:rje:randje:v:36:y:2005:3:p:520-543
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    Cited by:

    1. Francesco Nava & Pasquale Schiraldi, 2014. "Sales And Collusion In A Market With Storage," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 791-832, June.
    2. Nikolaus Fink, 2016. "Formation and Adaptation of the Sugar Cartel in Austria–Hungary," WIFO Working Papers 508, WIFO.
    3. Mitraille, Sébastien & Thille, Henry, 2014. "Speculative storage in imperfectly competitive markets," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 44-59.
    4. Antoniou, Fabio & Fiocco, Raffaele, 2017. "Strategic inventories under limited commitment," Working Papers 2072/306512, Universitat Rovira i Virgili, Department of Economics.
    5. Antoniou, Fabio & Fiocco, Raffaele, 2018. "Strategic inventories under limited commitment," MPRA Paper 83928, University Library of Munich, Germany.

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