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- Title
GAINING MORE BY STOCKING LESS: A COMPETITIVE ANALYSIS OF PRODUCT AVAILABILITY.
- Authors
Balachander, Subramanian; Farquhar, Peter H.
- Abstract
The price competition between two firms can affect their decisions about product availability. With occasional a firm loses from foregone sales, yet it may indirectly benefit from the higher price a competitor is able to charge. The more prone customers are to search elsewhere for the product upon encountering a stockout, the greater is the gain from the reduced price competition between firms. This paper establishes conditions whereby the strategic interaction of reduced price competition between firms outweighs the loss from foregone sales. In such cases, a firm can increase its expected profits by choosing to stock less. These results provide a competitive rationale for the high stockout levels observed in some retail situations and have implications for the analysis of product availability in public policy settings.
- Subjects
PRICING; PRODUCT management; COMPETITION; BUSINESS enterprises; CONSUMERS; INVENTORIES
- Publication
Marketing Science, 1994, Vol 13, Issue 1, p3
- ISSN
0732-2399
- Publication type
Article
- DOI
10.1287/mksc.13.1.3