Sharing Aggregate Inventory Information with Customers: Strategic Cross-Selling and Shortage Reduction

Abstract

This paper studies the strategy of sharing inventory information for a firm that sells two vertically differentiated products. The seller has private information on the aggregate inventory level and the inventory composition of two product variants. The seller credibly and discretionarily discloses inventory information to customers either fully or partially, i.e., disclosing the exact inventory of each product variant, the aggregate inventory level, or no information to customers. Customers form expectations of future availability and make rational purchasing decisions accordingly. In the disclosure literature, discretion usually leads to an unraveling result: sellers who learn favorable market information opt to disclose it, making full disclosure the equilibrium. This paper shows that aggregate inventory disclosure, i.e., partial disclosure, can be instead sustained as an ex post equilibrium. We demonstrate that inventory information aggregation arises when there is an ex post desire to reduce supply–d...