- Toulouse School of Economics
Thursday, April 27, 2017
Polo Santa Marta, Via Cantarane 24, Room 1.59
This paper offers a framework for studying the optimal product range choice of a multiproduct intermediary, in an environment where consumers demand multiple products and face search frictions.
We first demonstrate that the intermediary earns positive profit even if it is no more efficient than small firms at selling products. We then characterize its optimal stocking policy. The intermediary uses exclusively stocked high-value products as loss leaders to increase store traffic, and at the same time earns profit from non-exclusively stocked products which are relatively cheap to buy from manufacturers. We also show that relative to the social optimum, the intermediary tends to be too big and stock too many products exclusively.
- Programme Director
- Publication date
April 6, 2017