Publications
Publications
- 2007
Effects of Inventory on Demand for Rentals in the Home Video Market
By: Ioannis Ioannou, Julie Mortimer and Richard Mortimer
Abstract
Retailer inventory decisions can greatly influence observed demand for a product by affecting, among other things, product availability (stock-outs) and product visibility in the store. These inventory decisions are affected by numerous factors including vertical ownership structures, supply contracts, product characteristics, and the effect of additional inventory on competition. In this paper we provide an empirical analysis of the effect of inventory on realized sales in the U.S. video rental industry. Technological advances over the past decade have greatly increased the sophistication of inventory management and vertical contracts in the video rental industry making this a particularly interesting industry for studying inventory decisions. We find that an additional unit of inventory produces between 13.5 and 18.9 additional rentals over the life of a movie at the average video retail store, and that the size of this effect varies by movie type. This represents between a 3 percent and a 17 percent increase in rentals, indicating that retailers' inventory stocking policies substantially affect the level of product demand. The analysis allows for intertemporal substitution of rentals of a particular movie title, potentially mitigating some immediate stock-out effects and reducing the total effect of increased inventory levels.
Keywords
Decisions; Demand and Consumers; Supply Chain Management; Competition; Contracts; Entertainment and Recreation Industry; United States
Citation
Ioannou, Ioannis, Julie Mortimer, and Richard Mortimer. "Effects of Inventory on Demand for Rentals in the Home Video Market." December 2007.