Optimal Advance Selling Strategy under Price Commitment

Chenhang Zeng

No 2012-03, SDU Working Papers from School of Economics, Shandong University

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.

Keywords: advance selling; price commitment; endogenous price; demand uncertainty; experienced consumers. (search for similar items in EconPapers)
JEL-codes: C72 D42 L12 M31 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012-12
New Economics Papers: this item is included in nep-com, nep-cse and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Optimal Advance Selling Strategy under Price Commitment (2013)
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