Inventory Turnover and Product Variety
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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