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Monopoly Pricing under Demand Uncertainty: Final Sales versus Introductory ffers

  • Volker Nocke

    ()

    (Department of Economics, University of Pennsylvania)

  • Martin Peitz

    ()

    (School of Business Administration, International University of Germany)

We study rationing as a tool of the monopolist’s pricing strategy when demand is uncertain. Three pricing strategies are potentially optimal in our environment: uniform pricing, final sales, and introductory offers. The final sales strategy consists in charging a high price initially, but then lowering the price while committing to a total capacity. Consumers with high valuations to pay may decide to buy at the high price since the endogenous probability of rationing is higher at the lower price. The introductory offers strategy consists in selling a limited quantity at a low price initially, and then raising price. Those consumers with high valuations who were rationed initially at the lower price may find it optimal to buy the good at the higher price. We show that while the introductory offers strategy may dominate uniform pricing, it is never optimal if the monopolist can use the final sales strategy.

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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 03-002.

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Length: 43 pages
Date of creation: 13 Jan 2003
Date of revision:
Handle: RePEc:pen:papers:03-002
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  9. Volker Nocke & Martin Peitz, 2004. "Monopoly Pricing under Demand Uncertainty: Final Sales versus Introductory Offers," PIER Working Paper Archive 04-027, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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