TITLE:
The Impact of Information Asymmetry on Strategic Inventory Considering Online Reviews
AUTHORS:
Zhenzhong Guan, Yang Wang, Jianbiao Ren
KEYWORDS:
Strategic Inventory, Online Reviews, Information Asymmetry
JOURNAL NAME:
Theoretical Economics Letters,
Vol.14 No.5,
October
31,
2024
ABSTRACT: To minimize the losses of running out of stock after the appearance of online reviews and enhance their negotiating leverage with upstream manufacturers, retailers are motivated to adopt strategic inventory, which means to place large orders before the start of the sales season. Simultaneously, retailers may conceal the inventory information to maintain an information advantage compared to manufacturers. Therefore, based on the two aspects, we construct a theoretical model to examine how online reviews and information asymmetry influence strategic inventory. This study examines the intricate impacts of online reviews and information asymmetry on strategic inventories. We find that the retailer strategically maintains inventory under information symmetry (asymmetry) when consumers assign minimal (substantial) importance to online reviews. Counter-intuitively, information symmetry scenario dictates the existence of a holding cost threshold below which retailers are prohibited from maintaining strategic inventory. Besides, as online reviews improve, the retailer’s propensity to maintain inventory is augmented (reduced) under information symmetry (asymmetry). Furthermore, in the context of online reviews, implementing strategic inventory could still lead to a decrease in future pricing when information is symmetric. Nevertheless, prices might increase or decrease under information asymmetry. Finally, the manufacturer could gain an advantage from information asymmetry.