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Learning in Advance Selling with Heterogeneous Consumers

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Author Info

  • Oksana Loginova

    () (Department of Economics, University of Missouri-Columbia)

  • X. Henry Wang

    () (Department of Economics, University of Missouri-Columbia)

  • Chenhang Zeng

    () (Research Center for Games and Economic Behavior, Shandong University)

Abstract

The advance selling strategy is implemented when a firm offers consumers the opportunity to order its product in advance of the regular selling season. Advance selling reduces uncertainty for both the firm and the buyer and enables the firm to update its forecast of future demand. The distinctive feature of the present study of advance selling is that we divide consumers into two groups, experienced and inexperienced. Experienced consumers know their valuations of the product in advance. The presence of experienced consumers yields new insights. Specifically, pre-orders from experienced consumers lead to a more precise forecast of future demand by the firm. We show that the firm will always adopt advance selling and that the optimal pre-order price may be at a discount or a premium relative to the regular selling price.

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File URL: http://www.NETinst.org/Loginova_12-08.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 12-08.

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Length: 32 pages
Date of creation: Jul 2012
Date of revision: Sep 2012
Handle: RePEc:net:wpaper:1208

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Web page: http://www.NETinst.org/

Related research

Keywords: advance selling; the Newsvendor Problem; demand uncertainty; experienced consumers; inexperienced consumers.;

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  1. Özalp Özer & Wei Wei, 2006. "Strategic Commitments for an Optimal Capacity Decision Under Asymmetric Forecast Information," Management Science, INFORMS, vol. 52(8), pages 1238-1257, August.
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