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Oligopoly Price Discrimination: The Role of Inventory Controls

James Dana () and Kevin R. Williams ()
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Kevin R. Williams: Cowles Foundation, Yale University, http://kevinrwilliams.com/

No 2136R, 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 can also facilitate intertemporal price discrimination in oligopoly. In our model, competing firms first choose quantity and then choose prices in a series of advance-purchase markets. When demand becomes less elastic over time, as is the case in airline markets, a monopolist can easily price discriminate; however, we show that oligopoly firms generally cannot. We also show that using inventory controls allows oligopoly firms to 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)
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-reg
Date: 2018-06, Revised 2018-09
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