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Advance Selling in the Presence of Experienced Consumers

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Abstract

The advance selling strategy is implemented when a firm offers consumers the opportunity to order its product in advance of the regular selling season. Advance selling reduces uncertainty for both the firm and the buyer and enables the firm to update its forecast of future demand. The distinctive feature of the present theoretical study of advance selling is that we divide consumers into two groups, experienced and inexperienced. Experienced consumers know their valuations of the product in advance. The presence of experienced consumers yields new insights. Specifically, pre-orders from experienced consumers lead to a more precise forecast of future demand by the firm. We show that the firm will always adopt advance selling and that the optimal pre-order price may or may not be at a discount to the regular selling price.

Suggested Citation

  • 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.
    • Handle: RePEc:umc:wpaper:1108
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    References listed on IDEAS

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    1. Qian Liu & Garrett J. van Ryzin, 2008. "Strategic Capacity Rationing to Induce Early Purchases," Management Science, INFORMS, vol. 54(6), pages 1115-1131, June.
    2. Terry A. Taylor, 2006. "Sale Timing in a Supply Chain: When to Sell to the Retailer," Manufacturing & Service Operations Management, INFORMS, vol. 8(1), pages 23-42, November.
    3. Gérard P. Cachon, 2004. "The Allocation of Inventory Risk in a Supply Chain: Push, Pull, and Advance-Purchase Discount Contracts," Management Science, INFORMS, vol. 50(2), pages 222-238, February.
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    6. 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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    Cited by:

    1. Guo Chunxiang & Zhou Hong, 2019. "The Selection and Pricing of Mixed Multi-Channel Marketing Model for Mid-High Wines Under Experience Driven," Journal of Systems Science and Information, De Gruyter, vol. 7(1), pages 37-53, February.
    2. Chenhang Zeng, 2020. "Advance selling of new products considering retailers’ learning," International Journal of Economic Theory, The International Society for Economic Theory, vol. 16(3), pages 306-328, September.
    3. Chenhang Zeng, 2013. "Optimal Advance Selling Strategy under Price Commitment," Pacific Economic Review, Wiley Blackwell, vol. 18(2), pages 233-258, May.

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    More about this item

    Keywords

    advance selling; the Newsvendor Problem; demand uncertainty; experienced consumers; inexperienced consumers.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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