Demand Uncertainty, Inventories, and Resale Price Maintenance
The authors show that a manufacturer facing uncertain demand and selling through a competitive retail market may wish to support adequate retail inventories by preventing the emergence of discount retailers. In their model, discounters offer low prices made possible by low probability of being saddled with unsold inventories in the event of slack demand. Full-price retailers are compensated for a higher probability of unsold inventories by a higher retail price when they sell. The authors show that preventing discounting increases the manufacturer's wholesale demand and profits, and they delineate demand conditions under which equilibrium inventory holding and consumer welfare increase. Copyright 1996, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Volume (Year): 111 (1996)
Issue (Month): 3 (August)
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