DP6664 Advance-Purchase Discounts as a Price Discrimination Device

Author(s): Volker Nocke, Martin Peitz
Publication Date: January 2008
Keyword(s): advance-purchase discount, demand uncertainty, intertemporal pricing, introductory offers, monopoly pricing, price discrimination
JEL(s): D42, L12
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6664

In an intertemporal setting in which individual uncertainty is resolved over time, advance-purchase discounts can serve to price discriminate between consumers with different expected valuations for the same product. Consumers with a high expected valuation purchase the product before learning their actual valuation at the offered advance-purchase discount; consumers with a low expected valuation will wait and purchase the good at the regular price only in the event where their realized valuation is high. We provide a necessary and sufficient condition under which the monopolist's optimal intertemporal selling policy features such advance-purchase discounts.