This paper develops an oligopoly model in which firms first choose capacity and then compete in prices in a series of advance-purchase markets. We show the existence of multiple sales opportunities creates strong competitive forces that prevent firms from utilizing intertemporal price discrimination. We then show that intertemporal price discrimination is possible, but only when firms adopt inventory controls (sales limit restrictions) and demand becomes more inelastic over time. Therefore, in addition to being useful to manage demand uncertainty, we show that inventory controls are also a tool to soften price competition. We discuss model extensions, including product differentiation, aggregate demand uncertainty, and longer sales horizons

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

No 2136R4, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

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: 50 pages
Date: 2018-06, Revised 2021-11
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