CFDP 2136R2

Intertemporal Price Discrimination in Sequential Quantity-Price Games

Publication Date: June 2018

Revision Date: September 2018March 2019

Pages: 49

Abstract: 

When firms first choose capacity and then compete on prices in a series of advance-purchase markets, we show that strong competitive forces prevent firms from utilizing intertemporal price discrimination. We then enrich the model by allowing firms to use inventory controls, or sales limits assigned to individual prices. We show that firms will choose to set inventory controls in order to engage in intertemporal price discrimination, but only if demand becomes more inelastic over time. Thus, although typically viewed as a tool to manage demand uncertainty, we show that inventory controls can also facilitate price discrimination in oligopoly.

Keywords: Capacity-pricing games, Intertemporal price discrimination, Oligopoly models, Inventory controls

JEL Classification Codes: D21, D43, L13

JEL Classification Codes: D21D43L13