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Quality, Shelf Life, and Demand Uncertainty

Zhang Anzhou (anzhouzhang@lnu.edu.cn)
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Zhang Anzhou: Li Anmin Institute of Economic Research, Faculty of Economics, Liaoning University, 66 Middle Chongshan Road, Shenyang, 110036, China

The B.E. Journal of Theoretical Economics, 2024, vol. 24, issue 1, 49-75

Abstract: This paper studies a monopolist’s choices of quality and shelf life of a perishable good in the presence of demand uncertainty and sunk production cost. It shows that, in response to demand uncertainty, the firm typically produces multiple products which differ in quality and shelf life; under certain conditions, products with a longer shelf life are of lower quality; a probability distribution of demand which first-order (second-order) stochastically dominates another induces more (more or fewer) product varieties. It also provides conditions under which a higher quality product has a higher absolute profit margin but a lower percentage margin.

Keywords: demand uncertainty; perishable goods; product differentiation; product durability; shelf life (search for similar items in EconPapers)
JEL-codes: D21 L12 L23 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/bejte-2023-0013

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