Publication Date: June 2018
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.
Keywords: Capacity-pricing games, Intertemporal price discrimination, Oligopoly models, Inventory controls
JEL Classification Codes: D21, D43, L13CFDP 2136RCFDP 2136R2