@article{Differentiated:680,
      recid = {680},
      author = {Thurlow, Peter},
      title = {Stockout Avoidance Inventory Behaviour with Differentiated  Durable Products},
      publisher = {Bank of Canada},
      address = {1993},
      pages = {1 online resource (v, 33 pages)},
      abstract = {Stockout avoidance inventory models imply that firms  maintain inventory stocks that are low -too low to be  justified by the data. The reason is that these models are  based on the representative agent paradigm. Thus, if one  firm experiences a stockout then all firms do, and the cost  of the stockout is simply the delay of the marginal sale by  one period. In contrast, this study shows that, with  heterogeneity, stockouts need not be universal, and that  the cost of a stockout is therefore the permanent loss of a  marginal sale to the competition. This suggests that firms  may maintain large inventory stocks, a conclusion that has  implications for the dynamics of prices, output and sales.  In this paper a model is developed in which each firm sells  a single, differentiated, durable product. A distribution  over consumers’ preferences for the differentiated products  exists. The stochastic element is a fad shock that affects  the consumers’ preference for the differentiated attribute.  Dynamic programming is used to derive decision rules for  consumers and producers, and a closed-form solution is  found. The results suggest that in the aggregate market,  inventory stocks, which may be large, always exist, and yet  the average price is always influenced by stockouts.},
      url = {http://www.oar-rao.bank-banque-canada.ca/record/680},
      doi = {https://doi.org/10.34989/swp-1993-9},
}