Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Nov, 1985, Volume 53, Issue 6

The Variability of Aggregate Demand with (S, s) Inventory Policies<1395:TVOADW>2.0.CO;2-P
p. 1395-1410

Andrew S. Caplin

This paper develops a general theory of the aggregate implications of (S, s) inventory policies. It is shown that (S, s) policies add to the variability of demand, with the variance of orders exceeding the variance of sales. Overall, the (S, s) theory contradicts the widely held notion that retail inventories act as a buffer, protecting manufacturers from fluctuating sales.

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