Publication Date: June 2018
Revision Date: September 2018March 2019February 2020
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 that when the elasticity of demand falls across periods, 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 competing ﬁrms can proﬁtably use inventory controls. 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 2136R2