Document Type

Discussion Paper

Publication Date

6-1-2018

CFDP Number

2136

CFDP Pages

30

Journal of Economic Literature (JEL) Code(s)

D21, D43, L13

Abstract

Inventory controls, used most notably by airlines, are sales limits assigned to individual prices. While typically viewed as a tool to manage demand uncertainty, we argue that inventory controls also facilitate intertemporal price discrimination. In our model, competing firms first choose quantity and then choose prices in a series of advance-purchase markets. When demand becomes more inelastic over time, as in the airline and hotel markets, a monopolist can easily price discriminate; however, we show that oligopoly firms generally cannot. Inventory controls let firms set increasing prices regardless of whether or not demand is uncertain.

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