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Advance Selling in the Presence of Experienced Consumers

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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 theoretical 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 or may not be at a discount to the regular selling price.

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File URL: http://economics.missouri.edu/working-papers/2011/WP1108_loginova.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 1108.

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Length: 30
Date of creation: 30 Jun 2011
Date of revision:
Handle: RePEc:umc:wpaper:1108

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

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Cited by:
  1. Chenhang Zeng, 2012. "Optimal Advance Selling Strategy under Price Commitment," SDU Working Papers 2012-03, School of Economics, Shandong University.

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