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A model of advance selling with consumer heterogeneity and limited capacity

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  • X. Wang
  • Chenhang Zeng

Abstract

We study advance selling in a model with a capacity constraint for the seller and in the presence of both consumer heterogeneity and demand uncertainty. Buyers face different levels of uncertainty about their valuations in the advance selling period: one group of buyers (called informed buyers) know their individual valuations while the other group (called uninformed buyers) only know the distribution of their valuations. We find that the seller’s optimal pricing strategy depends on his capacity size as well as the size of informed buyers. For a small capacity size, the Constant Price strategy with the highest possible price is adopted. For sufficiently large capacity sizes, both Advance Purchase Discount and Advance Purchase Premium strategies may be optimal. In general, the larger the size of informed buyers the more likely an Advance Purchase Premium strategy is adopted. Copyright Springer-Verlag Wien 2016

Suggested Citation

  • X. Wang & Chenhang Zeng, 2016. "A model of advance selling with consumer heterogeneity and limited capacity," Journal of Economics, Springer, vol. 117(2), pages 137-165, March.
    • Handle: RePEc:kap:jeczfn:v:117:y:2016:i:2:p:137-165
    DOI: 10.1007/s00712-015-0446-4
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    Cited by:

    1. Chenhang Zeng, 2020. "Advance selling of new products considering retailers’ learning," International Journal of Economic Theory, The International Society for Economic Theory, vol. 16(3), pages 306-328, September.
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    3. Oksana Loginova, 2021. "Advance selling, competition, and brand substitutability," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(7), pages 1765-1781, October.
    4. Junshan Lin & Chenhang Zeng, 2023. "Pre-order strategies with demand uncertainty and consumer heterogeneity," The Japanese Economic Review, Springer, vol. 74(1), pages 83-115, January.

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    More about this item

    Keywords

    Advance selling; Capacity constraint; Consumer heterogeneity; Demand uncertainty; D42; L12;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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