Consumer Stockpiling and Price Competition in Differentiated Markets
Chinese University of Hong Kong
J. Miguel Villas-Boas
University of California, Berkeley
Journal of Economics and Management Strategy, Forthcoming
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
Date posted: April 16, 2007