Strategic stocking for new products to signal quality information

Abstract

This paper investigates the signaling role of stocking for new experience products in a two‐period setting. The seller privately observes the product quality information, which cannot be resolved until the second selling period. We show that the stocking plays a pivotal role in signaling the quality information, and the equilibrium strategy depends highly on ordering cost and the consumer prior belief about the seller type. If the seller is unable to dynamically decide the retail prices, separating equilibrium arises more frequently and such a fixed pricing may result in a win‐win situation for both seller and consumers.