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The effects of correlated demand on pricing, inventory, and production

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  • Suresh Govindaraj
  • Mahesh Kumar
  • Bharat Sarath

Abstract

Existing explanations for price discrimination in products and services invoke reasons like customer segmentation, information rents, transactions costs, or inventory constraints. By contrast, we propose the sellers’ objective to smooth profits as a possible explanation. We show that when sellers carry multiple products, the spread in buying and selling prices of any product depends not only on its own profits and inventory position, but also on the correlations of these variables with the other products. Consequently, sellers may price the same product differently depending on the range of products that they carry.

Suggested Citation

  • Suresh Govindaraj & Mahesh Kumar & Bharat Sarath, 2012. "The effects of correlated demand on pricing, inventory, and production," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 19(1), pages 61-78.
    • Handle: RePEc:taf:raaexx:v:19:y:2012:i:1:p:61-78
    DOI: 10.1080/16081625.2012.668056
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
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