Publication Date: June 2018
Revision Date: September 2018March 2019February 2020
Update Date: July 2021
This paper develops an oligopoly model in which ﬁrms ﬁrst choose capacity and then compete in prices in a series of advance-purchase markets. We show the existence of multiple sales opportunities creates strong competitive forces that prevent ﬁrms from utilizing intertemporal price discrimination. We then show that intertemporal price discrimination is possible, but only when ﬁrms adopt inventory controls (sales limit restrictions) and demand becomes more inelastic over time. Therefore, in addition to being useful to manage demand uncertainty, inventory controls are also a tool to soften price competition. We also discuss model extensions, including product diﬀerentiation, aggregate demand uncertainty, and longer sales horizons.
Keywords: Capacity-pricing games, Intertemporal price discrimination, Oligopoly models, Inventory controls
JEL Classification Codes: D21, D43, L13CFDP 2136CFDP 2136RCFDP 2136R2