IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Pricing Strategies in Advance Selling: Should a Retailer Offer Pre-order Price Guarantee?

Advance selling is a marketing strategy by a firm that allows consumers to submit pre-orders for a new to-be-released product. It helps the firm to reduce uncertainty about future demand and consumers to avoid stock-out risks. At the same time, consumers might be reluctant to place advance orders if they are uncertain about their valuations for the product or when they expect future price cuts. To induce early purchases, the firm may offer pre-order price guarantee. This paper examines the firm's profit-maximizing strategy in a two-period setting characterized by market size uncertainty, consumer valuation uncertainty, and consumer experience/inexperience with the product. I show that when consumers are less heterogeneous in their valuations, the firm should implement advance selling and offer pre-order price guarantee. For some parameter configurations pre-order price guarantee acts as a commitment device not to decrease the price in the regular selling season. In other situations, it enables the firm to react to the information obtained from pre-orders by increasing or decreasing the price. When consumers are more heterogeneous in their valuations and the market size uncertainty is small, or the fraction of experienced consumers in the population is high, the firm should not implement advance selling.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 1303.

in new window

Length: 25
Date of creation: 15 Mar 2013
Date of revision:
Publication status: Published in Economic Modelling (2013)
Handle: RePEc:umc:wpaper:1303
Contact details of provider: Postal: 118 Professional Building, Columbia, MO 65211
Phone: (573) 882-0063
Fax: (573) 882-2697
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Chenhang Zeng, 2013. "Optimal Advance Selling Strategy under Price Commitment," Pacific Economic Review, Wiley Blackwell, vol. 18(2), pages 233-258, 05.
  2. Nocke, Volker & Peitz, Martin & Rosar, Frank, 2011. "Advance-purchase discounts as a price discrimination device," Journal of Economic Theory, Elsevier, vol. 146(1), pages 141-162, January.
  3. Oksana Loginova & X. Henry Wang & Chenhang Zeng, 2012. "Learning in Advance Selling with Heterogeneous Consumers," SDU Working Papers 2012-02, School of Economics, Shandong University.
  4. 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.
  5. Cuihong Li & Fuqiang Zhang, 2013. "Advance Demand Information, Price Discrimination, and Preorder Strategies," Manufacturing & Service Operations Management, INFORMS, vol. 15(1), pages 57-71, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:umc:wpaper:1303. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valerie Kulp)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.