CFDP 2136R3

Intertemporal Price Discrimination in Sequential Quantity-Price Games

Publication Date: June 2018

Revision Date: September 2018March 2019February 2020

Pages: 48

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 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, L13

JEL Classification Codes: D21D43L13