Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73443
Authors: 
Steinmetz, Alexander
Year of Publication: 
2010
Series/Report no.: 
BGPE Discussion Paper 92
Abstract: 
This paper analyzes the interaction between price and inventory decisions in an oligopoly industry and its implications for the dynamics of prices. The work extends existing literature and especially the work of Hall and Rust (2007) to endogenous prices and strategic oligopoly competition. We show that the optimal decision rule is an (S, s) order policy and prices and inventory are strategic substitutes. Fixed ordering costs generate infrequent orders. Consequently, with strategic competition in prices, (S, s) inventory behavior together with demand uncertainty generates endogenous cyclical patterns in prices without any exogenous shocks. Hence, the developed model provides a promising framework for explaining dynamics of commodity markets and especially observed autocorrelation in price fluctuations.
Subjects: 
Inventory dynamics
price competition
oligopoly
(S;s) order policy
commodity markets.
JEL: 
D21
D43
E22
L81
Document Type: 
Working Paper

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