Advance Selling, Competition and Brand Substitutability

Year: 
2018
Working Paper Number: 
WP 18-12
Abstract: 

This paper studies the impact of competition on the benefits of advance selling. I construct a two-period price-setting game with two firms that produce different brands serving heterogeneous consumers. Some consumers prefer one brand, others prefer the other brand. Consumers derive common value from their preferred brand, but they differ in how strongly they dislike their less preferred brand. One of the firms can offer consumers the opportunity to pre-order its product in advance of the regular selling season. I calculate the benefits of advance selling when this firm faces competition from the other firm in the regular selling season and when it does not.  Competition is shown to enhance the benefits of advance selling when in the advance selling season consumers are uncertain about which brand they will prefer. Comparative statics analysis with respect to brand substitutability reveal some interesting results.

JEL Codes: 
C72, D42, D43, L12, L13, M31
Authors: 
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