Abstract. Oligopolistic retailers decide on the initial inventories of an undifferentiated limitedlifetime product offered to strategic consumers. A manufacturer sets the first-period (full) price, while the second-period (clearance) price is determined by a market clearing process. The resulting symmetric pure-strategy equilibria may lead to no sales in the first or second period (Cournot outcome versus collusion), and sales in both periods with the clearance price above or at the salvage value. The equilibria possess a comprehensive set of monotonic properties. In particular, increasing strategic behavior can benefit retailers and hurt consumers, increasing competition may harm the local economy, and high levels of strategic behavior may insure against oversupply that leads to clearance sales at the salvage value. The welfare-optimal number of retailers can lead to the above-cost clearance price.

Stollery (Can J Econ 31 (3): [730][731][732][733][734][735][736][737][738][739][740][741][742] 1998) studied a polluting oil-extracting economy governed by a constant utility criterion. The pollution, resulted from oil use, negatively affected production and utility. Stollery provided a closed-form solution for the case where only the production function was affected by the damage. This paper offers a closed-form solution to a non-trivial example of this economy with damage in the utility function. The solution is used for the analysis of uncertainties in resource policy caused by uncertainties in reserve estimate and in the intensity of the damage.

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