Advance-purchase discounts as a price discrimination device

Volker Nocke, Martin Peitz and Frank Rosar

Journal of Economic Theory, 2011, vol. 146, issue 1, 141-162

Abstract: In an intertemporal setting in which individual uncertainty is resolved over time, advance-purchase discounts can serve to price discriminate between consumers with different expected valuations for the product. Consumers with a high expected valuation purchase the product before learning their actual valuation at the offered advance-purchase discount; consumers with a low expected valuation will wait and purchase the good at the regular price only in the event where their realized valuation is high. We characterize the profit-maximizing pricing strategy of the monopolist. Furthermore, adopting a mechanism design perspective, we provide a necessary and sufficient condition under which advance-purchase discounts implement the monopolist's optimal mechanism.

Keywords: Advance-purchase; discount; Introductory; offers; Demand; uncertainty; Monopoly; pricing; Price; discrimination; Intertemporal; pricing; Mechanism; design (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (88)

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Related works:
Working Paper: Advance-Purchase Discounts as a Price Discrimination Device (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:146:y:2011:i:1:p:141-162

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