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Oligopoly Price Discrimination: The Role of Inventory Controls

James D. Dana Jr. () and Kevin R. Williams ()
Additional contact information
James D. Dana Jr.: Northwestern University
Kevin R. Williams: Cowles Foundation, Yale University, http://kevinrwilliams.com/

No 2136, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Inventory controls, used most notably by airlines, are sales limits assigned to individual prices. While typically viewed as a tool to manage demand uncertainty, we argue that inventory controls also facilitate intertemporal price discrimination. In our model, competing firms first choose quantity and then choose prices in a series of advance-purchase markets. When demand becomes more inelastic over time, as in the airline and hotel markets, a monopolist can easily price discriminate; however, we show that oligopoly firms generally cannot. Inventory controls let firms set increasing prices regardless of whether or not demand is uncertain.

Keywords: Capacity-pricing games; Intertemporal price discrimination; Oligopoly models; Inventory controls (search for similar items in EconPapers)
JEL-codes: D21 D43 L13 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2018-06
New Economics Papers: this item is included in nep-com, nep-ind, nep-mkt and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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