Tuesday, September 24, 2019

Oligopoly Price Discrimination: The Role of Inventory Controls

By: James D. Dana Jr. (Northwestern University); Kevin R. Williams (Cowles Foundation, Yale University)
Abstract: When ?rms ?rst choose capacity and then compete on prices in a series of advance-purchase markets, we show that strong competitive forces prevent firms from utilizing intertemporal price discrimination. We then enrich the model by allowing ?rms to use inventory controls, or sales limits assigned to individual prices. We show that ?rms will choose to set inventory controls in order to engage in intertemporal price discrimination, but only if demand becomes more inelastic over time. Thus, although typically viewed as a tool to manage demand uncertainty, we show that inventory controls can also facilitate price discrimination in oligopoly.
URL: http://d.repec.org/n?u=RePEc:cwl:cwldpp:2136r2&r=com


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