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Advance-Purchase Discounts And Monopoly Allocation Of Capacity

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  • GALE, I.L.
  • HOLMES, T.J.

Abstract

Optimal pricing by a monopoly airline that faces capacity constraints during the peak demand period is studied. The existence of capacity constraints means that in order to expand outp ut the airline must divert demand from the peak period to the off-peak period. A particular advance-purchase discount policy is shown to be the profit-maximizing method of selling tickets. If the advance-purchase requirement were infeasible, output and total surpl us would both be lower. Copyright 1993 by American Economic Association.
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Suggested Citation

  • Gale, I.L. & Holmes, T.J., 1990. "Advance-Purchase Discounts And Monopoly Allocation Of Capacity," Working papers 9005, Wisconsin Madison - Social Systems.
  • Handle: RePEc:att:wimass:9005
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    References listed on IDEAS

    as
    1. Dan Kovenock & Raymond Deneckere & Tom Faith & Beth Allen, 2000. "Capacity precommitment as a barrier to entry: A Bertrand-Edgeworth approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 501-530.
    2. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    3. Marimon, Ramon & McGrattan, Ellen & Sargent, Thomas J., 1990. "Money as a medium of exchange in an economy with artificially intelligent agents," Journal of Economic Dynamics and Control, Elsevier, vol. 14(2), pages 329-373, May.
    4. Aiyagari, S Rao & Wallace, Neil, 1992. "Fiat Money in the Kiyotaki-Wright Model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 447-464.
    5. Kehoe, Timothy J & Kiyotaki, Nobuhiro & Wright, Randall, 1993. "More on Money as a Medium of Exchange," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 297-314.
    6. King, Robert G. & Plosser, Charles I., 1986. "Money as the mechanism of exchange," Journal of Monetary Economics, Elsevier, pages 93-115.
    7. Peled, Dan, 1985. "Stochastic inflation and government provision of indexed bonds," Journal of Monetary Economics, Elsevier, pages 291-308.
    8. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
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