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Advance selling to strategic consumers

Author

Listed:
  • Michelle M. H. Şeref

    (Virginia Polytechnic Institute and State University)

  • Onur Şeref

    (Virginia Polytechnic Institute and State University)

  • Aydın Alptekinoğlu

    (The Pennsylvania State University)

  • S. Selçuk Erengüç

    (The University of Florida)

Abstract

Advance selling of goods and services is a form of separating purchase from consumption. It is often employed when consumers are uncertain about their consumption utilities until a short time period before consumption. A book to be released, a concert to attend, or a cruise to take are some examples. Invariably, in consumers’ mind inventory availability (of copies, seats, or rooms) is a concern. In this paper we study a retailer’s inventory and pricing decisions in an advance selling scenario that involves consumers who are strategic. Some consumers not only consider advance and spot prices, but also the uncertainty in future availability of the product (during the spot period) and in their consumption utility from it. We characterize the optimal inventory management and pricing policies, and discuss several interesting aspects of the solution. For example, it can be optimal for the retailer to limit advance sales even if there is more demand for it, and it can be optimal for the retailer to limit its inventory even though there is more capacity to keep it, but not both.

Suggested Citation

  • Michelle M. H. Şeref & Onur Şeref & Aydın Alptekinoğlu & S. Selçuk Erengüç, 2016. "Advance selling to strategic consumers," Computational Management Science, Springer, vol. 13(4), pages 597-626, October.
    • Handle: RePEc:spr:comgts:v:13:y:2016:i:4:d:10.1007_s10287-016-0264-3
    DOI: 10.1007/s10287-016-0264-3
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    References listed on IDEAS

    as
    1. Özalp Özer & Wei Wei, 2004. "Inventory Control with Limited Capacity and Advance Demand Information," Operations Research, INFORMS, vol. 52(6), pages 988-1000, December.
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    3. Christopher S. Tang & Kumar Rajaram & Ayd{i}n Alptekinou{g}lu & Jihong Ou, 2004. "The Benefits of Advance Booking Discount Programs: Model and Analysis," Management Science, INFORMS, vol. 50(4), pages 465-478, April.
    4. Özalp Özer, 2003. "Replenishment Strategies for Distribution Systems Under Advance Demand Information," Management Science, INFORMS, vol. 49(3), pages 255-272, March.
    5. Xuanming Su & Fuqiang Zhang, 2009. "On the Value of Commitment and Availability Guarantees When Selling to Strategic Consumers," Management Science, INFORMS, vol. 55(5), pages 713-726, May.
    6. Guillermo Gallego & Özalp Özer, 2003. "Optimal Replenishment Policies for Multiechelon Inventory Problems Under Advance Demand Information," Manufacturing & Service Operations Management, INFORMS, vol. 5(2), pages 157-175, February.
    7. 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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