On the economics of consumer stockpiling

2018-09-17T08:44:28Z (GMT) by Ruochen Li
Consumer stockpiling is a crucial retail phenomenon that has received wide academic attention. However, some related issues still remain unaddressed, with implications for many areas of economics policy. By focusing on consumer stockpiling, this thesis provides four theoretical essays to better understand these topics. The first essay analyses the implications for demand elasticities. It proposes a general foundation to understand how empirical estimates of own- and cross-price elasticities of demand can be biased when the effects of consumer stockpiling are not fully considered. It suggests that both the own- and cross-price elasticity biases can be positive, negative, or zero depending upon intuitive theoretical conditions. The second essay then places more structure on the above-mentioned general framework by developing a duopoly model of stockpiling with differentiated products. Within this model, the results show that the equilibrium measures of the own- and cross-price elasticity biases are both (weakly) positive. This essay then analyses when such biases matter most. The third essay considers market entry. It introduces consumer stockpiling behaviour into an n-firm oligopoly with differentiated products. First, we show that for any finite number of firms, any symmetric equilibrium involves a positive level of consumer stockpiling. Second, by introducing free entry, we show that the excess entry theorem continues to hold under consumer stockpiling. Finally, we show how consumer stockpiling can result in biased empirical estimates of demand elasticities, and how this varies with the numbers of firm in the market. The fourth essay introduces Behavioural-Based Price Discrimination (BBPD) into a storable product market. It shows that, in equilibrium, consumer stockpiling behaviour can be used as a device for the firm to perform BBPD. The results show that consumer stockpiling improves consumer surplus and profit despite the associated BBPD

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CC BY-NC-ND 4.0