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Inventories and Stochastic Demand: Equilibrium Models of the Firm and Industry

John P. Gould
The Journal of Business
Vol. 51, No. 1 (Jan., 1978), pp. 1-42
Stable URL: http://www.jstor.org/stable/2352616
Page Count: 42
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Inventories and Stochastic Demand: Equilibrium Models of the Firm and Industry
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Abstract

This paper examines the nature of equilibrium in a market where there is no central clearing house to match sellers with buyers. In this setting inventories (or capacity) and stockouts are substitutes for a central market. The model has numerous empirical implications which are discussed in Section X. Specifically, the model helps to explain how multiple prices can exist in a modified competitive equilibrium and how entrepreneurs might use vertical integration and various marketing devices as substitutes for a central market. The last section of the paper examines how the equilibrium is affected by the amount of information that is known by consumers and sellers.

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