CFDP 2136R3
Intertemporal Price Discrimination in Sequential Quantity-Price Games
Author(s):Publication Date: June 2018
Revision Date: September 2018March 2019February 2020
Update Date: July 2021
Pages: 45
Abstract:
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, L13
JEL Classification Codes: D21D43L13
See CFDP Version(s): CFDP 2136CFDP 2136RCFDP 2136R2