Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Monday, February 11, 2013

Optimal Advance Selling Strategy under Price Commitment

Posted by D. Daniel Sokol

Chenhang Zeng (Research Center for Games and Economic Behavior, Shandong University) offers Optimal Advance Selling Strategy under Price Commitment.

ABSTRACT: 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.

http://lawprofessors.typepad.com/antitrustprof_blog/2013/02/optimal-advance-selling-strategy-under-price-commitment.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef017d3fb88a3c970c

Listed below are links to weblogs that reference Optimal Advance Selling Strategy under Price Commitment:

Comments

Post a comment