Inventory in Vertical Relationships with Private Information and Interdependent Values
International Journal of Economic Theory, Forthcoming
21 Pages Posted: 14 Apr 2010 Last revised: 16 May 2010
Date Written: February 4, 2010
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).
Suggested Citation: Suggested Citation