Working Paper: NBER ID: w26794
Authors: James D. Dana Jr.; Kevin R. Williams
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: price discrimination; oligopoly; inventory controls; demand elasticity
JEL Codes: D21; D43; L0; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Strong competitive forces (L19) | equilibrium prices are flat over time (D41) |
| equilibrium prices are flat over time (D41) | prevents intertemporal price discrimination (D41) |
| Inventory controls (L81) | ability to charge different prices in different periods (L97) |
| Demand becomes more inelastic over time (D11) | inventory controls facilitate price discrimination (L11) |