CFDP 2136R3

Intertemporal Price Discrimination in Sequential Quantity-Price Games

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