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Strategic inventories under limited commitment

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  • Antoniou, Fabio
  • Fiocco, Raffaele

Abstract

In a dynamic storable good market where demand changes over time, we investigate the producer's strategic incentives to hold inventories in response to the possibility of buyer stockpiling. The literature on storable goods has demonstrated that buyer stockpiling in anticipation of higher future prices harms the producer's profitability, particularly when the producer cannot commit to future prices. We show that the producer's inventories act as a strategic device to mitigate the loss from the lack of commitment. Our results provide a rationale for the producer's inventory behavior that sheds new light on the well-documented empirical evidence about inventories.

Suggested Citation

  • Antoniou, Fabio & Fiocco, Raffaele, 2018. "Strategic inventories under limited commitment," MPRA Paper 83928, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:83928
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    buyer stockpiling; commitment; storable goods; strategic inventories;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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