Transaction Costs as a Source of Consumer Stockpiling

Luke Garrod, Li Ruochen () and Wilson Chris M.
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Li Ruochen: Center for Economic Research, Shandong University, Jinan, China
Wilson Chris M.: School of Business and Economics, Loughborough University, LoughboroughLE11 3TU, UK

The B.E. Journal of Economic Analysis & Policy, 2019, vol. 19, issue 3, 15

Abstract: Consumers often stockpile goods to store for future consumption. The existing theoretical literature has focussed on a price-based explanation where stockpiling arises due to temporary price reductions. In contrast, this paper explores a transaction-cost-based explanation where consumers stockpile to avoid the need to incur future transaction costs. It shows how transaction costs lead to positive consumer stockpiling in an oligopoly equilibrium even when future prices are expected to fall. Relative to a no-stockpiling benchmark, such stockpiling lowers profits, but improves consumer and total welfare. Our results extend to the case of quantity discounts where stockpiling consumers pay relatively lower per-unit prices than non-stockpiling consumers, when purchasing multi-unit bundles.

Keywords: consumer stockpiling; differentiated markets; price discrimination; quantity discounts; transaction costs (search for similar items in EconPapers)
JEL-codes: D11 D43 L13 M31 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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DOI: 10.1515/bejeap-2017-0316

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