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The paper aims to empirically investigate how demand variability impacts product category inventory levels and stockout rates of retail firms. Additionally, the moderating effect of product variety on these performance metrics is explored.

Using data from 78 individual retail stores of a single firm located in China, the authors develop a three stage least squares regression model to examine the simultaneous impact of product variety and demand variability on product inventory levels and stockout rates.

The results indicate that product variety and demand variability both negatively influence product category inventory levels and stockout rates. However, contrary to results for manufacturing or distributor environments, product variety dampens the negative relationship between demand variability and inventory.

For products or categories with a high amount of demand variability, retailers can leverage more product variety to help improve their inventory performance. This is likely due to product substitution behaviors.

The authors show that previously examined relationships between product variety, demand variability, and firm performance are different in the retail environment than in the manufacturing or distributor context.

To encourage buyers to contribute product reviews, some online sellers offer monetary rewards. The purpose of this paper is to investigate the impact of monetary rewards on buyers’ purchase decisions and review contributions, as well as the impact on the seller’s price decisions and profit.

The authors consider an online seller in a two-stage setting. Prior to Stage 1, the profit-maximizing seller sets the price and decides whether to offer a monetary reward secretly to motivate online reviews. Then, a continuum of buyers arrives and makes purchase decisions at the beginning of each stage. First-stage buyers may contribute reviews if they are satisfied, which will affect demand in the second stage. Using this analytical framework, the authors analyze the impact of monetary rewards.

If the monetary reward is small, it decreases the seller’s profit and fails to generate more reviews. It also increases price, leading to a decline in total demand. Thus, when the reward is lower than a certain threshold, all buyers are worse off. Only when the reward exceeds the threshold are buyers who contribute reviews better off. Profit and total demand both increase in review quality, while the price may either increase or decrease in it.

To the best of the authors’ knowledge, this paper is the first to analyze theoretically the impact of monetary rewards on buyers’ purchase decisions, review contributions and on online sellers’ decisions.