Dynamic Pricing with Uncertain Capacities

In markets, such as those for airline tickets and hotel accommodations, firms sell time-dated products and have private information about unsold capacities. We show that competition under private information explains observed phenomena, such as increased price dispersion and higher expected prices towards the deadline, without making specific assumptions about demand. We also show that private information severely limits the market power of firms and that information exchange about capacity negatively affects consumers. Finally, we inquire into the incentives to unilaterally disclose information or to engage in espionage about rival's capacity and show that these activities are particularly harmful for consumers.