TY  - JOUR
AU  - Ioannou,Ioannis
AU  - Mortimer,Julie Holland
AU  - Mortimer,Richard
TI  - The Effects of Capacity on Sales Under Alternative Vertical Contracts
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14611
PY  - 2008
Y2  - December 2008
UR  - http://www.nber.org/papers/w14611
L1  - http://www.nber.org/papers/w14611.pdf
N1  - Author contact info:
Ioannis Ioannou
London Business School
E-Mail: iioannou@london.edu

Julie H. Mortimer
Department of Economics
Boston College
140 Commonwealth Avenue
Chestnut Hill, MA 02467
Tel: 617-552-3676
Fax: 617-552-2308
E-Mail: julie.mortimer.2@bc.edu

Richard A. Mortimer
Analysis Group
111 Huntington Ave - 10th floor
Boston, MA 02199
E-Mail: rmortimer@analysisgroup.com
AB  - 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. New monitoring technologies facilitated new supply contracts in this industry, which lowered the upfront costs of capacity and required minimum capacity purchases, strongly impacting stocking decisions. Under the traditional supply contract, capacity costs $44 per tape (avg) and the marginal tape produces 10.4 to 18.0 additional rentals. Under the new contract, capacity costs $7 per tape (avg) and the marginal tape produces 0 to 4.9 additional rentals.
ER  -