Just Published: Managerial and Decision Economics

MU Economics

Professor Oksana Loginova publishes a theoretical study of advance selling, a marketing practice in which the firm offers consumers an opportunity to purchase its product before it becomes available for consumption, in Managerial and Decision Economics. The title of the paper is “Advance Selling, Competition and Brand Substitutability,” and its main goal is to investigate the impact of competition on the benefits of advance selling. In other words, does a firm have stronger or weaker incentives to advance sell when it faces competition from another firm compared to when it does not? The first instinct of somebody trained as an economist may be to say that competition increases the benefits of advance selling because of the business-stealing effect. This turns out to be accurate when in advance consumers are uncertain about the identity of their preferred product. The firm should not implement advance selling in the absence of such uncertainty.

Formal Abstract: I analyze how information structure influences the profitability of advance selling in the presence of a competitor. Two firms produce different brands serving heterogeneous consumers. In advance, consumers know the utility they will get from their preferred brand, but can be uninformed about its identity, how much they will dislike their nonpreferred brand, or both. The firms set prices in the main selling season (when uncertainty is resolved) simultaneously, but one firm can set an advance selling price (while there is still uncertainty). Competition enhances the profitability of advance selling when consumers are uninformed about which brand they will prefer.

Oksana Loginova