Optimal Early-Bird Discounts and the Challenges of Diversion

Per Kristian Alnes

International Journal of the Economics of Business, 2025, vol. 32, issue 1, 105-137

Abstract: Variable pricing and early-bird discounts can shift some demand or the time of purchase from higher-priced periods to lower-priced periods without increasing the total demand. This diversion effect influences optimal price levels, and the present paper presents a model for calculating optimal early-bird discounts when incorporating diversion. The model also reveals the differences in price elasticities and the feasible price interval for positive profit. The paper contributes to the literature on early-bird pricing strategies and offers practical insights for service providers seeking to optimize their pricing strategies. The empirical relevance is documented using survey and real-life experimental data among skiers at a major ski resort in Norway. The main insights of the paper are that the profit-maximizing discounts and the gap between the optimal price with and without diversion increase with the length of the pre-booking period.

Date: 2025
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DOI: 10.1080/13571516.2024.2396804

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