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Inventory Turnover and Product Variety

  • Howard P. Marvel
  • James Peck

Retailers face powerful incentives to limit the inventories they stock, and this leads them to focus on inventory turn as a performance measure. Their desire to pare inventory holding costs yields a misalignment of their incentives with those of a supplier seeking to have a broad line of products held. We identify the source of the vertical misalignment and demonstrate its impact on product variety. We then consider a series of vertical restraints that can potentially correct the problem. The analysis is used to explain the otherwise puzzling behavior of suppliers in several recent and significant antitrust matters. (c) 2008 by The University of Chicago. All rights reserved.

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File URL: http://dx.doi.org/10.1086/590396
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Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 51 (2008)
Issue (Month): 3 (08)
Pages: 461-478

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Handle: RePEc:ucp:jlawec:v:51:y:2008:i:3:p:461-478
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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  1. Howard P. Marvel & Stephen McCafferty, 1984. "Resale Price Maintenance and Quality Certification," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 346-359, Autumn.
  2. Chee K. Ng & Janet Kiholm Smith & Richard L. Smith, 1999. "Evidence on the Determinants of Credit Terms Used in Interfirm Trade," Journal of Finance, American Finance Association, vol. 54(3), pages 1109-1129, 06.
  3. Kandel, Eugene, 1996. "The Right to Return," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 329-56, April.
  4. Howard P. Marvel & Raymond Deneckere & James Peck, 1995. "Demand Uncertainty, Inventories, and Resale Price Maintainance," Working Papers 019, Ohio State University, Department of Economics.
  5. Brynjolfsson, Erik & Smith, Michael D. & Yu, (Jeffrey) Hu, 2003. "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers," Working papers 4305-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  6. Mitchell Berlin, 2003. "Trade credit: why do production firms act as financial intermediaries?," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 21-28.
  7. Vishal Gaur & Marshall L. Fisher & Ananth Raman, 2005. "An Econometric Analysis of Inventory Turnover Performance in Retail Services," Management Science, INFORMS, vol. 51(2), pages 181-194, February.
  8. Dana, James D, Jr & Spier, Kathryn E, 2001. "Revenue Sharing and Vertical Control in the Video Rental Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 223-45, September.
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