Document Type

Discussion Paper

Publication Date

6-1-2018

CFDP Number

2136R3

CFDP Revision Date

September 2018, March 2019, February 2020

CFDP Update Date

7-20-2021

CFDP Pages

45

Journal of Economic Literature (JEL) Code(s)

D21, D43, L13

Abstract

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, inventory controls are also a tool to soften price competition. We also discuss model extensions, including product differentiation, aggregate demand uncertainty, and longer sales horizons.

Included in

Economics Commons

Share

COinS