Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

1-2010

Publication Source

Management Science

Volume

56

Issue

1

Start Page

25

Last Page

40

DOI

10.1287/mnsc.1090.1075

Abstract

This paper studies a monopolist firm selling a fixed capacity. The firm sets a price before demand uncertainty is resolved. Speculators may enter the market purely with the intention of resale, which can be profitable if demand turns out to be high. Consumers may strategically choose when to purchase, and they may also choose to purchase from the firm or from the speculators. We characterize equilibrium prices and profits and analyze the long-run capacity decisions of the firm. There are three major findings. First, the presence of speculators increases the firm's expected profits even though the resale market competes with the firm. Second, by facilitating resale, the firm can mimic dynamic pricing outcomes and enjoy the associated benefits while charging a fixed price. Third, speculative behavior may generate incentives for the seller to artificially restrict supply, and thus may lead to lower capacity investments. We also explore several model extensions that highlight the robustness of our results.

Keywords

dynamic pricing, speculation, resale, strategic customer behavior, competition

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Date Posted: 27 November 2017

This document has been peer reviewed.