Intertemporal Price Discrimination in Sequential Quantity-Price Games
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.
A previous version of this paper circulated under the title "Oligopoly Price Discrimination: The Role of Inventory Controls." We would like to thank Heski Bar-Isaac, Iwan Bos, Johannes Hörner, Aniko Öry, Robert Phillips, Maher Said, Kathryn Spier, Jidong Zhou and participants at the 2016 International Industrial Organization Conference, the 2016 INFORMS Revenue Management and Pricing Conference, and the Tuck School of Business operations management workshop for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.