Consumer Stockpiling and Price Competition in Differentiated Markets

Posted: 16 Apr 2007  

Liang Guo

Chinese University of Hong Kong

J. Miguel Villas-Boas

University of California, Berkeley

Multiple version iconThere are 2 versions of this paper

Abstract

In many storable-goods markets, firms are often aware that consumers may strategically adjust purchase timing in response to expected price dynamics. For example, in periods when prices are low, consumers stockpile for future consumption. This paper investigates the dynamic impact of consumer stockpiling on competing firms' strategic pricing decisions in differentiated markets. The necessity of equilibrium consumer storage for storable products is re-examined. It is shown that preference heterogeneity generates differential consumer stockpiling propensity, thereby intensifying future price competition. As a result, consumer storage may not necessarily arise as an equilibrium outcome. Economic forces are also investigated that may mitigate the competition intensifying effect of consumer inventories and that, hence, may lead to equilibrium consumer storage.

Keywords: consumer stockpiling, differentiation, inventory, price competition

Suggested Citation

Guo, Liang and Villas-Boas, J. Miguel, Consumer Stockpiling and Price Competition in Differentiated Markets. Journal of Economics and Management Strategy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=980505

Liang Guo (Contact Author)

Chinese University of Hong Kong ( email )

CUHK Business School
CUHK
Hong Kong
China
(852)3943-7830 (Phone)
(852)2603-5473 (Fax)

J. Miguel Villas-Boas

University of California, Berkeley ( email )

Haas School of Business
Berkeley, CA 94720
United States
510-642-1250 (Phone)
510-643-1420 (Fax)

Paper statistics

Abstract Views
756