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Learning in Advance Selling with Heterogeneous Consumers

Oksana Loginova (), X. Wang () and Chenhang Zeng ()

No 1408, Working Papers from Department of Economics, University of Missouri

Abstract: The advance selling strategy is implemented when a firm offers consumers the opportunity to order its product in advance of the regular selling season. Advance selling reduces uncertainty for both the firm and the buyer and enables the firm to update its forecast of future demand. The distinctive feature of the present study of advance selling is that we divide consumers into two groups, experienced and inexperienced. Experienced consumers know their valuations of the product in advance, while inexperienced consumers learn their valuations only in the regular selling season. The presence of experienced consumers yields new insights. Specifically, pre- orders from experienced consumers lead to a more precise forecast of future demand by the firm. We show that the firm will always adopt advance selling and that the optimal pre-order price may be at a discount or a premium relative to the regular selling price.

Keywords: advance selling; the Newsvendor Problem; demand uncertainty; experienced consumers; inexperienced consumers; learning (search for similar items in EconPapers)
JEL-codes: C72 D42 L12 M31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mkt
Date: 2014-04-14
Note: Substantially revised from WP1213
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https://economics.missouri.edu/working-papers/2014/wp1408_loginova.pdf (application/pdf)

Related works:
Journal Article: Learning in Advance Selling with Heterogeneous Consumers (2017) Downloads
Working Paper: Learning in Advance Selling with Heterogeneous Consumers (2012) Downloads
Working Paper: Learning in Advance Selling with Heterogeneous Consumers (2012) Downloads
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