MARKET POWER AND BUFFER STOCKS

The first-order conditions for a monopolist inventory holder are found under more general conditions than previously. It is found that monopolist storers facing inelastic demand will carry over more stock than they would with competition unless the elasticity of demand is increasing as price decreases or is constant. The competitive stocks equilibrium is identified and found to be Pareto optimal and hence Sarris' result that there will be no losers from a rent-maximizing buffer stock policy is shown to be wrong.