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Inventory Management In Decentralized Markets

Author

Listed:
  • Fei Li
  • Charles Murry
  • Can Tian
  • Yiyi Zhou
Abstract
We present a directed search model of intermediaries' dynamic inventory and revenue management. Search frictions hinder instantaneous replenishment, prompting intermediaries to utilize dynamic inventory‐based pricing and ordering strategies. In equilibrium, when inventory is high, an intermediary posts a lower retail price to speed up sales and depresses wholesale price to slow down purchases. We characterize the evolution dynamics of inventory holdings and their steady‐state distribution, and extend the model to multiunit wholesale orders, product differentiation, and heterogeneous intermediaries. Using data from used‐car dealers, we quantitatively evaluate the welfare consequence of used‐car dealers' inventory management practice.

Suggested Citation

  • Fei Li & Charles Murry & Can Tian & Yiyi Zhou, 2024. "Inventory Management In Decentralized Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(1), pages 431-470, February.
    • Handle: RePEc:wly:iecrev:v:65:y:2024:i:1:p:431-470
    DOI: 10.1111/iere.12669
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    References listed on IDEAS

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