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Advance-Purchase Programs: When To Introduce And What To Inform Consumers

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Executive Summary

The authors study a two-stage model in which the information processed by consumers at the first stage (advance-purchase stage) is endogenously determined. In the model, the firm decides whether to introduce an advance-purchase program, chooses what attribute information to disclose and determines an advance-purchase price and a retail price. Forward-looking consumers strategically choose, based on the disclosed information, to buy in advance or to make a purchase decision at the second stage (retail stage) when all information is revealed. They characterize the firm's optimal choice on the advance-purchase program and the strategy of information disclosure. In particular, they show that the firm always prefers to introduce the advance-purchase program except when underlying consumer preferences are extremely homogenous.

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