A model of advance selling with consumer heterogeneity and limited capacity
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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