MARK3082 Lecture Notes - Lecture 4: Data Analysis, Rationality, Regression Analysis

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Advance selling: examples: movie tickets, pre-orders, hotel bookings, air ticket bookings, advance selling occurs when sellers allow buyers to purchase at a time preceding consumption. New technology: e-ticket, smart card (vs. credit card, online store. Motivations: allow reserving capacity (at high advance price, reducing seller risk (eg. weather risk, hedge future uncertain consumption states, price discrimination across buyers. In the advance period, buyers often have uncertainty about their future consumption state: this uncertainty can create a profit advantage of advance selling compared with spot selling. Spot sell at ; profit = 100 = . Spot sell at ; profit = 50 = . Maximum advance price = + = . 50. Advance sell at . 50; profit = . 50 100 = . Profit = 50 + 50 = . Factors: marginal costs, capacity constraints, refund, price sensitivity, competition, risk aversion, etc. Advance and spot sell at a low price;

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