Competition in Price and Availability When Availability is Unobservable
Posted: 24 Sep 2001
Abstract
I present a strategic model of competition in price and availability in which demand is uncertain and consumers choose where to shop given firms' observable prices and their expectations of firms' unobservable inventories. In both a single-period Cournot model (inventories are chosen first) and a single-period Bertrand model (prices are chosen first), I show that firms use higher prices to "signal" higher availability. This creates a floor on equilibrium prices and industry profits regardless of the number of firms. The model is useful in understanding the relationship between price and availability in the video rental industry.
Suggested Citation: Suggested Citation
Dana, James D., Competition in Price and Availability When Availability is Unobservable. RAND Journal of Economics, Vol. 32, No. 3, Available at SSRN: https://ssrn.com/abstract=279770
Feedback
Feedback to SSRN
If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday.