Selling strategy under capacity constraint in perishable good markets

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Wu, Ruhai

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This dissertation studies the monopoly seller’s optimal selling strategy under a capacity constraint in perishable good markets. The three chapters focus on the resale market, channel competition and rationing phenomena respectively. Chapter one studies ticket resale using a two-period model where a monopoly seller sells tickets in both periods. Three scenarios of resale are considered, namely no resale, where resale is infeasible in both periods; complete resale, where resale in feasible in both periods; and partial resale, where resale is feasible in the advance period but not in the spot period. The essay shows that, if the seller has limited capacity, the number of high-valuation buyers is small enough and the number of early arrivers is not too large, partial resale can lead to a higher profit for the seller than complete resale or no resale. Chapter two studies the symbiotic competition relationship between a supplier and an independent reseller, in which while the supplier relies upon the reseller in distribution, the supplier’s direct channel inevitably competes with the reseller’s channel. The essay compares two mechanisms that the supplier can use to control the potential channel competitions, i.e. the low-price guarantee and the capacity control mechanism. The essay illustrates the drawbacks of the widely-adopted low-price guarantee mechanism, and shows how the capacity control mechanism can avoid the potential channel conflicts and increase the supplier’s profit. Chapter three provides a theory of rationing, where rationing functions as an effective mechanism for second degree price discrimination. Rationing in the lower price market segment forces buyers with high valuations to buy at the higher price. Rationing’s impact on the seller’s profit depends on the shape of the demand curve and on the sellers’ capacity constraint. The essay presents the necessary conditions and sufficient conditions on the demand curve and capacity constraint for rationing to be beneficial to the seller. The essay further shows that rationing can help the seller through different discrimination strategies.