Regulating Availability with Demand Uncertainty
I evaluate 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 however claim that rationing is due to demand uncertainty and thereby undermine the regulation's rationale. Indeed, demand uncertainty explains empirical observations better than a theory of loss leaders. This paper shows, however, that also under demand uncertainty the regulation has positive effects. Ultimately, it raises production, which, under imperfect competition, is beneficial. A strict regulation overshoots its goal when high demand is relatively unlikely. In this case more sophisticated regulation is required.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- T. M. Whitin, 1955. "Inventory Control and Price Theory," Management Science, INFORMS, vol. 2(1), pages 61-68, October.
- Deneckere, Raymond & Marvel, Howard P & Peck, James, 1996.
"Demand Uncertainty, Inventories, and Resale Price Maintenance,"
The Quarterly Journal of Economics,
MIT Press, vol. 111(3), pages 885-913, August.
- Howard P. Marvel & Raymond Deneckere & James Peck, 1995. "Demand Uncertainty, Inventories, and Resale Price Maintainance," Working Papers 019, Ohio State University, Department of Economics.
- Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
- James D. Dana Jr., 1999. "Equilibrium Price Dispersion Under Demand Uncertainty: The Roles of Costly Capacity and Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 632-660, Winter.
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Bester, Helmut, 1994. "Random Advertising and Monopolistic Price Dispersion," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(3), pages 545-59, Fall.
- Smith, Kenneth R., 1969. "The effect of uncertainty on monopoly price, capital stock and utilization of capital," Journal of Economic Theory, Elsevier, vol. 1(1), pages 48-59, June.
When requesting a correction, please mention this item's handle: RePEc:bef:lsbest:019. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (XXX)
If references are entirely missing, you can add them using this form.