The efficiency of advance-purchase discounts in the presence of aggregate demand uncertainty

Ian L. Gale, Thomas J. Holmes

Research output: Contribution to journalArticlepeer-review

55 Scopus citations

Abstract

The pricing behavior of two airlines is examined - one is operated by a welfare-maximizing social planner, the other by an unregulated monopolist. Total capacity is fixed and aggregate demand is uncertain. It is shown that advance-purchase discounts can assist in attaining an efficient allocation of capacity when it is not feasible to operate a spot market on the day of the flight. It is further shown that the planner may offer larger or smaller discounts than the monopolist.

Original languageEnglish (US)
Pages (from-to)413-437
Number of pages25
JournalInternational Journal of Industrial Organization
Volume10
Issue number3
DOIs
StatePublished - Sep 1992

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