THE EFFECTS OF CAPACITY ON SALES UNDER ALTERNATIVE VERTICAL CONTRACTS

Retailer capacity decisions can impact sales for products by affecting, for example, availability and visibility. Using data from the U.S. video rental industry, we report estimates of the effect of capacity on sales under alternative vertical contracts. New monitoring technologies facilitated new s...

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Bibliographic Details
Published inThe Journal of industrial economics Vol. 59; no. 1; pp. 117 - 154
Main Authors IOANNOU, IOANNIS, MORTIMER, JULIE HOLLAND, MORTIMER, RICHARD
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.03.2011
Blackwell Publishing
Subjects
Capacity
Capacity costs
Coefficients
Contracts
Economic rent
Impact analysis
Industrial economics
Instrumental variables
Publishing industry
Rent
Rentals
Retail industries
Retail stores
Retail trade
Revenue sharing
Sales
Stock management
Studies
U.S.A
Vertical markets
Video stores
Videos
United States > US
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Summary:Retailer capacity decisions can impact sales for products by affecting, for example, availability and visibility. Using data from the U.S. video rental industry, we report estimates of the effect of capacity on sales under alternative vertical contracts. New monitoring technologies facilitated new supply contracts in this industry, reducing upfront costs of capacity but requiring minimum capacity purchases, strongly impacting stocking decisions. We find that larger capacity (more tapes) for a given title can substantially increase rentals of that title; and that alternative vertical contractual forms for distributing tapes from studios to retailers strongly impacts the relationship between capacity and rentals.
Bibliography:We thank James Dana, Guido Imbens, Lawrence Katz and Phillip Leslie for helpful discussions on an earlier version of this paper; we also thank Thomas Hubbard and two anonymous referees for helpful comments and suggestions. The data for this study were generously provided by Rentrak Corporation, and we thank Robert Liuag, Ellen Dannenberg and Amir Yazdani for their help in collecting the data. Julie Mortimer thanks Robert Barro for financial support through the Warburg funds. Any errors are our own.
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ISSN:0022-1821
1467-6451
DOI:10.1111/j.1467-6451.2011.00448.x