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Inventory Turnover and Product Variety

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  • Howard P. Marvel
  • James Peck

Abstract

Retailers face powerful incentives to limit the inventories they stock, and this leads them to focus on inventory turn as a performance measure. Their desire to pare inventory holding costs yields a misalignment of their incentives with those of a supplier seeking to have a broad line of products held. We identify the source of the vertical misalignment and demonstrate its impact on product variety. We then consider a series of vertical restraints that can potentially correct the problem. The analysis is used to explain the otherwise puzzling behavior of suppliers in several recent and significant antitrust matters. (c) 2008 by The University of Chicago. All rights reserved.

Suggested Citation

  • Howard P. Marvel & James Peck, 2008. "Inventory Turnover and Product Variety," Journal of Law and Economics, University of Chicago Press, vol. 51(3), pages 461-478, August.
    • Handle: RePEc:ucp:jlawec:v:51:y:2008:i:3:p:461-478
    DOI: 10.1086/590396
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    References listed on IDEAS

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    1. Marvel, Howard P & Peck, James, 1995. "Demand Uncertainty and Returns Policies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 691-714, August.
    2. Vishal Gaur & Marshall L. Fisher & Ananth Raman, 2005. "An Econometric Analysis of Inventory Turnover Performance in Retail Services," Management Science, INFORMS, vol. 51(2), pages 181-194, February.
    3. Mitchell Berlin, 2003. "Trade credit: why do production firms act as financial intermediaries?," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 21-28.
    4. repec:bla:jindec:v:49:y:2001:i:3:p:223-45 is not listed on IDEAS
    5. Raymond Deneckere & Howard P. Marvel & James Peck, 1996. "Demand Uncertainty, Inventories, and Resale Price Maintenance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 885-913.
    6. Chee K. Ng & Janet Kiholm Smith & Richard L. Smith, 1999. "Evidence on the Determinants of Credit Terms Used in Interfirm Trade," Journal of Finance, American Finance Association, vol. 54(3), pages 1109-1129, June.
    7. Erik Brynjolfsson & Yu (Jeffrey) Hu & Michael D. Smith, 2003. "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers," Management Science, INFORMS, vol. 49(11), pages 1580-1596, November.
    8. Kandel, Eugene, 1996. "The Right to Return," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 329-356, April.
    9. Howard P. Marvel & Stephen McCafferty, 1984. "Resale Price Maintenance and Quality Certification," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 346-359, Autumn.
    10. James D. Dana, Jr. & Kathryn E. Spier, 2001. "Revenue Sharing and Vertical Control in the Video Rental Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 223-245, September.
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    Cited by:

    1. Emek Basker & Shawn Klimek & Pham Hoang Van, 2012. "Supersize It: The Growth of Retail Chains and the Rise of the “Big‐Box” Store," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(3), pages 541-582, September.
    2. Marvel, Howard P. & Yang, Huanxing, 2008. "Group purchasing, nonlinear tariffs, and oligopoly," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1090-1105, September.
    3. Christopher Klein & Shea Slonaker, 2010. "Chart Turnover and Sales in the Recorded Music Industry: 1990–2005," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(4), pages 351-372, June.
    4. Marvel, Howard P. & Wang, Hao, 2009. "Distribution contracts to support optimal inventory holdings under demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 625-631, September.

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