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Strategic inventories under limited commitment

Fabio Antoniou () and Raffaele Fiocco ()

MPRA Paper from University Library of Munich, Germany

Abstract: In a dynamic storable good market where demand changes over time, we investigate the producer's strategic incentives to hold inventories in response to the possibility of buyer stockpiling. The literature on storable goods has demonstrated that buyer stockpiling in anticipation of higher future prices harms the producer's profitability, particularly when the producer cannot commit to future prices. We show that the producer's inventories act as a strategic device to mitigate the loss from the lack of commitment. Our results provide a rationale for the producer's inventory behavior that sheds new light on the well-documented empirical evidence about inventories.

Keywords: buyer stockpiling; commitment; storable goods; strategic inventories (search for similar items in EconPapers)
JEL-codes: D21 D42 L12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com
Date: 2018-01-14
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