The Effects of Capacity on Sales Under Alternative Vertical Contracts

Ioannis Ioannou, Julie Mortimer and Richard Mortimer

No 14611, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Retailer capacity decisions can impact sales for products by affecting, for example, availability and visibility. Using data from the U.S. video rental industry, we report estimates of the effect of capacity on sales. New monitoring technologies facilitated new supply contracts in this industry, which lowered the upfront costs of capacity and required minimum capacity purchases, strongly impacting stocking decisions. Under the traditional supply contract, capacity costs $44 per tape (avg) and the marginal tape produces 10.4 to 18.0 additional rentals. Under the new contract, capacity costs $7 per tape (avg) and the marginal tape produces 0 to 4.9 additional rentals.

JEL-codes: L0 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-com and nep-cul
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Published as Ioannis Ioannou & Julie Holland Mortimer & Richard Mortimer, 2011. "The Effects Of Capacity On Sales Under Alternative Vertical Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 59(1), pages 117-154, 03.

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Journal Article: THE EFFECTS OF CAPACITY ON SALES UNDER ALTERNATIVE VERTICAL CONTRACTS (2011)
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