The effects of correlated demand on pricing, inventory, and production

Suresh Govindaraj, Mahesh Kumar and Bharat Sarath

Asia-Pacific Journal of Accounting & Economics, 2012, vol. 19, issue 1, 61-78

Abstract: Existing explanations for price discrimination in products and services invoke reasons like customer segmentation, information rents, transactions costs, or inventory constraints. By contrast, we propose the sellers’ objective to smooth profits as a possible explanation. We show that when sellers carry multiple products, the spread in buying and selling prices of any product depends not only on its own profits and inventory position, but also on the correlations of these variables with the other products. Consequently, sellers may price the same product differently depending on the range of products that they carry.

Date: 2012
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DOI: 10.1080/16081625.2012.668056

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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