Imperfect Competition with Costly Disposal
Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft
This paper studies the disposal costs’ effect on consumer surplus and firms’ profits. The costlier disposal, the less is disposed of, firms’ competition for market shares increases, thereby benefiting consumers. Yet firms decrease their produc- tion to mitigate costs, affecting consumer surplus negatively. We present a model with ex ante homogeneous firms producing inventories either early at low cost and with little information about demand, or later with more information yet at higher costs. Unsold products are disposed of. In equilibrium, firms may be asymmetric. Disposal goes down with costs but so do inventories. In our set-up, the negative effect on the trade volume dominates decreasing consumer surplus and firms’ profits. We show, however, that low disposal costs substitute infor- mation about demand. Increasing disposal costs improve a firm’s information advantage and may increase its profits.
Keywords: Disposal; Inventory; Uncertain Demand; Market Structure (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 L50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ube:dpvwib:dp2105
Access Statistics for this paper
More papers in Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft Contact information at EDIRC.
Bibliographic data for series maintained by Franz Koelliker ().