Imperfect competition with costly disposal

Lenhard, Severin (2022). Imperfect competition with costly disposal. International Journal of Industrial Organization, 82, p. 102842. Elsevier 10.1016/j.ijindorg.2022.102842

Preview

Text 1-s2.0-S0167718722000182-main.pdf - Published Version Available under License Creative Commons: Attribution (CC-BY). Download (2MB) | Preview

This paper studies the effect of disposal costs on consumer surplus and firms’ profits. First, we analyze a monopolist producing inventories either early on at a low cost and with little information about demand, or later with more information yet at a higher cost. Unsold products are discarded. The firm forgoes an early production cost advantage if and only if the disposal cost and demand uncertainty are both simultaneously high. Expected disposal decreases in its cost, yet the firm lowers its production to mitigate costs, resulting in lower expected profit and consumer surplus. Similar results hold for firms competing in sales volumes with unobserved inventories. Ex-ante symmetric firms may choose different production timings. The disposal cost substitutes information about demand, thereby affecting a firm’s information advantage. Accordingly, a firm’s expected profit may increase with the disposal cost. Firms may adjust their production timing, resulting in a discontinuous change in the expected profit and consumer surplus.

Interest & Impact

Downloads

28 since deposited on 10 Nov 2022
14 in the past 12 months

Citations

5 Citations in Web of Science ®
6 Citations in Scopus

Search

in Google Scholar™

Services

Actions (login required)

Edit item

Actions (login required)

Edit item