The impact of retailer stockouts on whether, how much, and what to buy

Abstract This paper investigates the impact of retailer stockouts on whether, how much, and what consumers buy in a category during the out-of-stock period. It adds to previous literature by investigating the stockouts' impact on purchase quantities, by uncovering the pattern of within-category shifts triggered by them, and by analyzing dynamic effects on incidence, quantity, and choice decisions. Although essential for an accurate assessment of stockout implications, these aspects of out-of-stock (OOS) behavior have received little attention so far. Moreover, while most of the previous literature on stockouts relies on surveys measuring reported or intended behavior, this research examines revealed stockout response in a natural store environment. To this end, traditional purchase incidence, quantity and choice models are adapted to account for various stockout effects, and estimated based on scanner panel data for two product categories. While tractable, the models capture various aspects of stockout reactions within the store, allowing to trace the implications of stockouts for specific SKUs and household (segment)s. The estimation results demonstrate that out-of-stocks can affect all three purchase decisions: they may reduce the probability of purchase incidence, lead to the purchase of smaller quantities, and induce asymmetric, non-IIA choice shifts. Simulation of aggregate implications further suggests that, on the whole, retailer losses from stockouts remain limited, while manufacturer losses can be quite substantial, depending on the stockout item and the store's assortment composition.