advance selling

Advance Selling, Competition and Brand Substitutability

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.

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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