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Advance-Purchase Discounts as a Price Discrimination Device

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  • Nocke, Volker
  • Peitz, Martin

Abstract

In an intertemporal setting in which individual uncertainty is resolved over time, advance-purchase discounts can serve to price discriminate between consumers with different expected valuations for the same product. Consumers with a high expected valuation purchase the product before learning their actual valuation at the offered advance-purchase discount; consumers with a low expected valuation will wait and purchase the good at the regular price only in the event where their realized valuation is high. We provide a necessary and sufficient condition under which the monopolist's optimal intertemporal selling policy features such advance-purchase discounts.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6664.

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Date of creation: Jan 2008
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Handle: RePEc:cpr:ceprdp:6664

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Keywords: advance-purchase discount; demand uncertainty; intertemporal pricing; introductory offers; monopoly pricing; price discrimination;

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References

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  1. James D. Dana & Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
  2. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
  3. Crémer, Jacques & Khalil, Fahad, 1991. "Gathering Information before Signing a Contract," IDEI Working Papers 5, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Heski Bar-Isaac & Guillermo Caruana & Vicente Cunat, 2008. "Information Gathering and Marketing," Working Papers 08-17, New York University, Leonard N. Stern School of Business, Department of Economics.
  5. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
  6. Gale, Ian L. & Holmes, Thomas J., 1992. "The efficiency of advance-purchase discounts in the presence of aggregate demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 413-437, September.
  7. Wilson, Charles A, 1988. "On the Optimal Pricing Policy of a Monopolist," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 164-76, February.
  8. Dana, James D, Jr, 2001. "Monopoly Price Dispersion under Demand Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 649-70, August.
  9. Courty, Pascal, 2002. "Ticket Pricing Under Demand Uncertainty," CEPR Discussion Papers 3443, C.E.P.R. Discussion Papers.
  10. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  11. Courty, Pascal & Li, Hao, 2000. "Sequential Screening," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 697-717, October.
  12. Gale, I.L. & Holmes, T.J., 1990. "Advance-Purchase Discounts And Monopoly Allocation Of Capacity," Working papers 9005, Wisconsin Madison - Social Systems.
  13. Riley, John & Zeckhauser, Richard, 1983. "Optimal Selling Strategies: When to Haggle, When to Hold Firm," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 267-89, May.
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Citations

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Cited by:
  1. Marc M�ller & Makoto Watanabe, 2013. "Competition in the Presence of Individual Demand Uncertainty," Tinbergen Institute Discussion Papers 13-185/V, Tinbergen Institute.
  2. repec:umc:wpaper:1213 is not listed on IDEAS
  3. Chenhang Zeng, 2012. "Optimal Advance Selling Strategy under Price Commitment," SDU Working Papers 2012-03, School of Economics, Shandong University.
  4. Gershkov, Alex & Moldovanu, Benny, 2012. "Dynamic allocation and pricing: A mechanism design approach," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 283-286.
  5. Krähmer, Daniel & Strausz, Roland, 2013. "Ex post information rents and disclosure in sequential screening," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 406, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. BELLEFLAMME, Paul & LAMBERT, Thomas & SCHWIENBACHER, Armin, 2011. "Crowdfunding: tapping the right crowd," CORE Discussion Papers 2011032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Bang, Se Hoon & Kim, Jaesoo, 2013. "Price discrimination via information provision," Information Economics and Policy, Elsevier, vol. 25(4), pages 215-224.
  8. Oksana Loginova, 2013. "Pricing Strategies in Advance Selling: Should a Retailer Offer Pre-order Price Guarantee?," Working Papers 1303, Department of Economics, University of Missouri.
  9. Oksana Loginova & X. Hnery Wang & Chenhang Zeng, 2014. "Learning in Advance Selling with Heterogeneous Consumers," Working Papers 1408, Department of Economics, University of Missouri.
  10. Bose, Subir, 2014. "Monopolistic screening and uninformed buyers," Economic Modelling, Elsevier, vol. 36(C), pages 348-353.
  11. Kovác, Eugen & Krähmer, Daniel, 2013. "Optimal Sequential Delegation," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 427, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  12. Wojciech Hardy, 2013. "How to perfectly discriminate in a crowd? A theoretical model of crowdfunding," Working Papers 2013-16, Faculty of Economic Sciences, University of Warsaw.
  13. Seongman Moon & Makoto Watanabe, 2011. "Refundability and Price: Empirical Analysis on the Airline Industry," Working Papers 1107, Research Institute for Market Economy, Sogang University.
  14. Daniel Krähmer & Roland Strausz, 2014. "Ex Post Information Rents in Sequential Screening," CESifo Working Paper Series 4739, CESifo Group Munich.
  15. Marc Möller & Makoto Watanabe, 2013. "Competition in the Presence of Individual Demand Uncertainty," CESifo Working Paper Series 4490, CESifo Group Munich.
  16. Zhang, Tianle, 2010. "Advance-Purchase Programs: When to Introduce and What to Inform Consumers," MPRA Paper 25606, University Library of Munich, Germany.

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