The positive and negative effects of inventory on category purchase: An empirical analysis

Product inventory exerts two countervailing forces on the probability of purchase: More inventory on hand reduces the need to purchase; however, theory suggests higher levels of inventory can drive up consumption, thereby increasing the chance of purchase. Moreover, consumers have biased estimations of their own inventory—especially at high levels of inventory (Chandon and Wansink, <CitationRef CitationID="CR6">2006</CitationRef>), which again suggests a positive relationship between inventory and purchase probability. We model the negative (standard) and positive effects of inventory on the probability of purchase. The model is calibrated on ten product categories and fits better than the standard nested logit and an alternative developed by Ailawadi and Neslin (<CitationRef CitationID="CR1">1998</CitationRef>). The elasticity of purchase incidence with respect to inventory represents these opposing forces in an intuitive way, implying an inventory threshold below (above) which the net effect is positive (negative). Estimated thresholds are plausible across categories, with the food categories of hot dogs, ice cream and soft drinks showing the largest effects. Copyright Springer Science + Business Media, LLC 2007