Abstract
Retailers often worry about how shoppers will react when they find an empty shelf, but the anticipation of experiencing a stockout may also impact customer behavior. This in turn affects a retailer's optimal price and inventory choices. In this paper we explore how the feasibility of visiting a second seller in a differentiated product duopoly impacts market outcomes using a combination of theoretical modeling, experiments, and simulations. Behaviorally, when shoppers can only visit a single seller they overweigh the probability of being stocked out and avoid a seller they expect to be too crowded. A result of this is that a seller may sell more units by stocking a lower inventory. Subject sellers appear to anticipate this reaction when making price and inventory choices. However, when it is costless to visit a second seller, customers follow their dominant strategies. While subject sellers are observed to engage in excessive price competition, they do not under stock.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
