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Roles of a preselling strategy under asymmetric information

Author

Listed:
  • Xi Wang

    (Shanghai Lixin University of Accounting and Finance)

  • Xu Guan

    (Huazhong University of Science and Technology)

  • Zelong Yi

    (Shenzhen University)

Abstract

In many product markets, one firm may provide an option to buy ahead of time. In this circumstance, customers inevitably make a purchase decision under uncertainty on the future price as well as the valuation of product, which critically relies on the marginal cost. The marginal cost is usually private information of the firm in reality. There is a common misconception that the firm would profit a lot from the preselling owing to private information on the marginal cost. However, this paper finds the role of preselling under asymmetric information is disputable. We employ the framework of dynamic game to examine the impact of cost information asymmetry and signaling effect in influencing the firm?’s preselling strategy and profitability. We find the firm has no incentive to presell, and the information superiority may not benefit the firm. Likewise, the disadvantage of information may not hurt customers due to their rational expectation of cost.

Suggested Citation

  • Xi Wang & Xu Guan & Zelong Yi, 2019. "Roles of a preselling strategy under asymmetric information," Marketing Letters, Springer, vol. 30(1), pages 91-105, March.
    • Handle: RePEc:kap:mktlet:v:30:y:2019:i:1:d:10.1007_s11002-019-09477-9
    DOI: 10.1007/s11002-019-09477-9
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    References listed on IDEAS

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