Price smoothing and inventory behavior (Q1094308)

Consider a monopolist who cannot hold inventories. He would increase price in response to a demand increase if desired sales did not increase too much, and lower it otherwise. If the former case holds for all realizations of a random demand curve, the possibility of holding inventories will lead to reduced price variability. If the latter case holds systematically, inventory holding will lead to more price variability. If the effect depends on the level of demand, we can say nothing about the consequences of inventory holding for price variability. This contrasts with the results of a number of recent papers.