price guarantee

Pricing Strategies in Advance Selling: Should a Retailer Offer a Pre-order Price Guarantee?

I consider a retailer who sells a new product over two periods: advance and regular selling seasons. Experienced consumers learn their valuations for the product in the advance selling season, while inexperienced consumers learn only when the product becomes available in the regular selling season. The retailer is uncertain about the number of inexperienced consumers. Production takes place between the periods. Unsold units are scrapped at a price that is below the retailer's marginal cost, which makes it costly to produce and not sell.

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