Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Tuesday, January 8, 2013

Strategic Inventory and Supply Chain Behavior

Posted by D. Daniel Sokol

Robin Hartwig (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg), Karl Inderfurth (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg), Abdolkarim Sadrieh (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) and Guido Voigt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) explore Strategic Inventory and Supply Chain Behavior.

ABSTRACT: Based on a serial supply chain model with 2-periods and price-sensitive demand, we present the first experimental test of the effect of strategic inventories on supply chain performance. In theory, if holding costs are low enough, the buyer builds up a strategic inventory (even if no operational reasons for stock-holding exist) to limit the supplier's market power, to increase the own profit share, and to enhance the overall supply chain performance. The supplier anticipates the effect of the strategic inventory and differentiates prices to capture a part of the increased supply chain profits. Our results show that the positive effects of strategic inventories are even more pronounced than theoretically predicted, because strategic inventories empower buyers to reduce payoff inequalities and suppliers exhibit a willingness to reduce inequalities as long as their payoff remains above a certain threshold. Overall, strategic inventories have a double positive effect, a strategic and a behavioral, both reducing the average wholesale prices and damping the double marginalization effect and the latter leading to more equitable payoffs.

http://lawprofessors.typepad.com/antitrustprof_blog/2013/01/strategic-inventory-and-supply-chain-behavior.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef017d3e98d5e2970c

Listed below are links to weblogs that reference Strategic Inventory and Supply Chain Behavior :

Comments

Post a comment