Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/242856 
Year of Publication: 
2021
Series/Report no.: 
Discussion Papers No. 21-05
Publisher: 
University of Bern, Department of Economics, Bern
Abstract: 
This paper studies the disposal costs' effect on consumer surplus and firms' profits. The costlier disposal, the less is disposed of, firms' competition for market shares increases, thereby benefiting consumers. Yet firms decrease their production to mitigate costs, affecting consumer surplus negatively. We present a model with ex ante homogeneous firms producing inventories either early at low cost and with little information about demand, or later with more information yet at higher costs. Unsold products are disposed of. In equilibrium, firms may be asymmetric. Disposal goes down with costs but so do inventories. In our set-up, the negative effect on the trade volume dominates decreasing consumer surplus and firms' profits. We show, however, that low disposal costs substitute information about demand. Increasing disposal costs improve a firm's information advantage and may increase its profits.
Subjects: 
Disposal
Inventory
Uncertain Demand
Market Structure
JEL: 
D43
L11
L13
L50
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

Files in This Item:
File
Size
715.69 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.