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A model of advance selling with consumer heterogeneity and limited capacity

Listed author(s):
  • X. Henry Wang

    ()

    (University of Missouri)

  • Chenhang Zeng

    ()

    (Shandong University)

Abstract We study advance selling in a model with a capacity constraint for the seller and in the presence of both consumer heterogeneity and demand uncertainty. Buyers face different levels of uncertainty about their valuations in the advance selling period: one group of buyers (called informed buyers) know their individual valuations while the other group (called uninformed buyers) only know the distribution of their valuations. We find that the seller’s optimal pricing strategy depends on his capacity size as well as the size of informed buyers. For a small capacity size, the Constant Price strategy with the highest possible price is adopted. For sufficiently large capacity sizes, both Advance Purchase Discount and Advance Purchase Premium strategies may be optimal. In general, the larger the size of informed buyers the more likely an Advance Purchase Premium strategy is adopted.

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File URL: http://link.springer.com/10.1007/s00712-015-0446-4
File Function: Abstract
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Article provided by Springer in its journal Journal of Economics.

Volume (Year): 117 (2016)
Issue (Month): 2 (March)
Pages: 137-165

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Handle: RePEc:kap:jeczfn:v:117:y:2016:i:2:d:10.1007_s00712-015-0446-4
DOI: 10.1007/s00712-015-0446-4
Contact details of provider: Web page: http://www.springer.com

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  1. Xiangkang Yin, 2013. "Two-part tariffs set by a risk-averse monopolist," Journal of Economics, Springer, vol. 109(2), pages 175-192, June.
  2. Oksana Loginova & X. Henry Wang & Chenhang Zeng, 2012. "Learning in Advance Selling with Heterogeneous Consumers," Working Papers 12-08, NET Institute, revised Sep 2012.
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  8. Courty, Pascal, 2003. "Ticket Pricing under Demand Uncertainty," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 627-652, October.
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  11. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-146, March.
  12. Phillip Leslie, 2004. "Price Discrimination in Broadway Theater," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 520-541, Autumn.
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  15. Jinhong Xie & Steven M. Shugan, 2001. "Electronic Tickets, Smart Cards, and Online Prepayments: When and How to Advance Sell," Marketing Science, INFORMS, vol. 20(3), pages 219-243, June.
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