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Strategic inventories under limited commitment
Author(s) -
Antoniou Fabio,
Fiocco Raffaele
Publication year - 2019
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12292
Subject(s) - commit , anticipation (artificial intelligence) , incentive , profitability index , business , economics , industrial organization , microeconomics , empirical evidence , commitment device , finance , philosophy , epistemology , database , artificial intelligence , computer science
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.