Optimal Advance Selling Strategy under Price Commitment
AbstractThis paper considers a two-period model with experienced consumers and inexperienced consumers. The retailer determines both advance selling price and regular selling price at the beginning of the first period. I show that advance selling weekly dominates no advance selling, and the optimal advance selling price may be at a discount, at a premium or at the regular selling price. To help the retailer choose the optimal pricing strategy, conditions for each possible advance selling strategy to outperform others are characterized. Furthermore, how the consumer composition affects the retailer¡¯s optimal pricing strategy and profit are examined. In the extension, a special case with no experienced consumers provides a new explanation of advance selling price premium. That is, without experienced consumers, there are no incentives for the retailer to implement advance selling at a premium price. Besides, another special case indicates that advance selling strictly dominates no advance selling when consumer valuation distribution is uncertain. With pre-order information obtained in the first period under advance selling, the retailer is able to know the consumer valuation distribution and thus better forecast the future demand.
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Bibliographic InfoPaper provided by School of Economics, Shandong University in its series SDU Working Papers with number 2012-03.
Length: 26 pages
Date of creation: Dec 2012
Date of revision:
advance selling; price commitment; endogenous price; demand uncertainty; experienced consumers.;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
- NEP-COM-2013-01-07 (Industrial Competition)
- NEP-CSE-2013-01-07 (Economics of Strategic Management)
- NEP-MKT-2013-01-07 (Marketing)
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