The Relation between Inventory Investment and Price Dynamics in a Distributive Firm

Akiyuki Tonogi ()

No 10, UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics

Abstract: In this paper, we examine the role of inventory in the price-setting behavior of a distributive firm. Empirically, we show the 5 empirical facts relating to pricing behavior and selling quantity of a certain consumer goods based on daily scanner data to examine the relation between store properties and pricing behavior. These results denote that price stickiness varies by the retailers’ characteristics. We consider that the hidden mechanism of price stickiness comes from the retailer’s policy for inventory investment. A partial equilibrium model of the retailer’s optimization behavior with inventory is constructed so as to replicate the five empirical facts. The results of the numerical experiments in the constructed model suggest that price change frequency depends on the retailer’s order cost, storage cost, and menu cost, not on the price elasticity of demand.

Keywords: Inventory; Price Stickiness; Numerical Experiment; (S, s) Policy (search for similar items in EconPapers)
JEL-codes: D22 E27 E31 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013-08
New Economics Papers: this item is included in nep-com and nep-mac
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Related works:
Working Paper: The Relation between Inventory Investment and Price Dynamics in a Distributive Firm (2013)
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