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Optimal Advance Selling Strategy under Price Commitment

  • Chenhang Zeng

    ()

    (Research Center for Games and Economic Behavior, Shandong University)

This paper considers a two-period model with experienced consumers and inexperienced consumers. The retailer determines both advance selling price and regular selling price at the beginning of the first period. I show that advance selling weekly dominates no advance selling, and the optimal advance selling price may be at a discount, at a premium or at the regular selling price. To help the retailer choose the optimal pricing strategy, conditions for each possible advance selling strategy to outperform others are characterized. Furthermore, how the consumer composition affects the retailer¡¯s optimal pricing strategy and profit are examined. In the extension, a special case with no experienced consumers provides a new explanation of advance selling price premium. That is, without experienced consumers, there are no incentives for the retailer to implement advance selling at a premium price. Besides, another special case indicates that advance selling strictly dominates no advance selling when consumer valuation distribution is uncertain. With pre-order information obtained in the first period under advance selling, the retailer is able to know the consumer valuation distribution and thus better forecast the future demand.

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File URL: http://econ.sdu.edu.cn/RePEc/shn/wpaper/Optimal_advance_selling_strategy_under_price_commitment.pdf
File Function: First version, 2012
Download Restriction: no

Paper provided by School of Economics, Shandong University in its series SDU Working Papers with number 2012-03.

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Length: 26 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:shn:wpaper:2012-03
Contact details of provider: Web page: http://econ.sdu.edu.cn

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  1. 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.
  2. repec:umc:wpaper:1213 is not listed on IDEAS
  3. Oksana Loginova & X. Hnery Wang & Chenhang Zeng, 2011. "Advance Selling in the Presence of Experienced Consumers," Working Papers 1108, Department of Economics, University of Missouri.
  4. Oksana Loginova & X. Henry Wang & Chenhang Zeng, 2012. "Learning in Advance Selling with Heterogeneous Consumers," Working Papers 12-08, NET Institute, revised Sep 2012.
  5. Nocke, Volker & Peitz, Martin, 2008. "Advance-Purchase Discounts as a Price Discrimination Device," CEPR Discussion Papers 6664, C.E.P.R. Discussion Papers.
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