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Inventory in vertical relationships with private information and interdependent values
Author(s) -
Anton James,
Biglaiser Gary,
Lewis Tracy
Publication year - 2011
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2010.00153.x
Subject(s) - distributor , interdependence , microeconomics , private information retrieval , economics , business , inventory management , operations research , operations management , industrial organization , computer science , mathematics , engineering , mechanical engineering , computer security , political science , law
We study the use of inventory when a distributor is better informed about demand than a manufacturer. We find that when distributor and manufacturer values are interdependent it is optimal to endow the distributor with some inventory before it obtains its private information. We characterize the final allocation of the good and show that the distributor may have too few (many) units relative to the efficient allocation when demand is high (low).