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Advance Purchase Discounts Versus Clearance Sales

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  • Marc Möller
  • Makoto Watanabe

Abstract

This article considers advance selling problems. It explains why some goods (e.g. airline tickets) are sold cheap to early buyers, while others (e.g. theatre tickets) offer discounts to those who buy late. We derive the profit maximising selling strategy for a monopolist when aggregate demand is certain but buyers face uncertainty about their individual demands. When aggregate demand exceeds capacity, both Advance Purchase Discounts as well as Clearance Sales might be optimal. We determine how the comparison of these price discrimination strategies depends on the rationing rule, capacity costs and the availability of temporal capacity limits, price commitment and resale. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Suggested Citation

  • Marc Möller & Makoto Watanabe, 2010. "Advance Purchase Discounts Versus Clearance Sales," Economic Journal, Royal Economic Society, vol. 120(547), pages 1125-1148, September.
    • Handle: RePEc:ecj:econjl:v:120:y:2010:i:547:p:1125-1148
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