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Regulating Availability with Demand Uncertainty

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  • Roland Strausz
Abstract
. I evaluate a new German regulation that requires retail discounters to guarantee the availability of their products in bargain sales. The regulation is meant to prevent loss leaders. Retailers undermine the regulation's rationale by claiming that rationing is due to demand uncertainty. This paper shows that under demand uncertainty the regulation has ambiguous welfare effects. Effectively, it raises production, which, under imperfect competition, tends to be beneficial. However, the regulation overshoots and decreases welfare if it requires availability for a state of high demand that is relatively unlikely. In this case more sophisticated regulation is required.

Suggested Citation

  • Roland Strausz, 2007. "Regulating Availability with Demand Uncertainty," German Economic Review, Verein für Socialpolitik, vol. 8(1), pages 107-121, February.
    • Handle: RePEc:bla:germec:v:8:y:2007:i:1:p:107-121
    DOI: 10.1111/j.1468-0475.2007.00136.x
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    References listed on IDEAS

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