IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v61y2015i3p560-577.html
   My bibliography  Save this article

Rationing Capacity in Advance Selling to Signal Quality

Author

Listed:
  • Man Yu

    () (Department of Information Systems, Business Statistics and Operations Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

  • Hyun-Soo Ahn

    () (Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

  • Roman Kapuscinski

    () (Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

Abstract

We consider a seller who can sell her product over two periods, advance and spot. The seller has private information about the product quality, which is unknown to customers in advance and publicly revealed in spot. The question we consider is whether the seller has an incentive to signal quality in advance and, if so, how she can convey a credible signal of product quality. We characterize the seller's signaling strategy and find that rationing of capacity in the advance period is an effective tool of signaling product quality. We find that the high-quality seller can distinguish herself by allocating less capacity than the low-quality seller in the advance period. We show that this signaling mechanism exists whenever advance selling would be optimal for both the high-quality and low-quality sellers if quality were known by the consumers. Interestingly, the seller's ability to ration (rationing flexibility) sometimes disadvantages the seller; this effect is independent of product quality. This paper was accepted by Yossi Aviv, operations management .

Suggested Citation

  • Man Yu & Hyun-Soo Ahn & Roman Kapuscinski, 2015. "Rationing Capacity in Advance Selling to Signal Quality," Management Science, INFORMS, vol. 61(3), pages 560-577, March.
  • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:3:p:560-577
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2013.1888
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:jomega:v:73:y:2017:i:c:p:18-28 is not listed on IDEAS
    2. repec:eee:transe:v:110:y:2018:i:c:p:137-146 is not listed on IDEAS

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:61:y:2015:i:3:p:560-577. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc). General contact details of provider: http://edirc.repec.org/data/inforea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.