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Quality, Shelf Life, and Demand Uncertainty

Author

Listed:
  • Zhang Anzhou

    (Li Anmin Institute of Economic Research, Faculty of Economics, Liaoning University, 66 Middle Chongshan Road, Shenyang, 110036, China)

Abstract

This paper studies a monopolist’s choices of quality and shelf life of a perishable good in the presence of demand uncertainty and sunk production cost. It shows that, in response to demand uncertainty, the firm typically produces multiple products which differ in quality and shelf life; under certain conditions, products with a longer shelf life are of lower quality; a probability distribution of demand which first-order (second-order) stochastically dominates another induces more (more or fewer) product varieties. It also provides conditions under which a higher quality product has a higher absolute profit margin but a lower percentage margin.

Suggested Citation

  • Zhang Anzhou, 2024. "Quality, Shelf Life, and Demand Uncertainty," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 24(1), pages 49-75, January.
    • Handle: RePEc:bpj:bejtec:v:24:y:2024:i:1:p:49-75:n:11
    DOI: 10.1515/bejte-2023-0013
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    More about this item

    Keywords

    demand uncertainty; perishable goods; product differentiation; product durability; shelf life;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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