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Martin
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what happens to companies that hoard inventory in the hopes

Resolved Question:

what happens to companies that hoard inventory in the hopes of hedging future price increases?
e.g. the Nigerian government has banned the importation of soap and detergent in a move to strengthen the national economy and setting up production internally.
Submitted: 6 years ago.
Category: General
Expert:  Martin replied 6 years ago.
Hello master 1959, welcome to Just Answer.

The question you asked and the example you gave are different.

If we start with the example, it's a good strategy in some case but not always. It's what is called "protectionism". There is some downside to this:

-It can increase inflation
-It does not promote competitiveness, so it might come back to bite you in the future when you re-open the trade.
-You can break international trade treaty you previously signed and have to pay penalty fee.

If a company hoard inventory, it might be a good strategy when the prices are surely to go up. It can also cause problems:

-The price increase is never 100% sure.
-It increase the insurance fees.
-It increase associated cost to guard and store the inventory.
-Depending of the nature of the product, it can become bad, obsolete or just no longer trendy.
-It can cause the emergence of new competitors.
-If you do it at the same time the competitor do it, you might get into price cartel investigations.
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