Publication Date: June 2018
Revision Date: September 2018March 2019
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, L13CFDP 2136CFDP 2136RCFDP 2136R3