Advanced sales and competition in a service industry

Abstract

This paper analyses the relationship between a firms' interest in advance sales and the competition intensity in the market when consumers adopt a strategic behaviour in purchasing. We demonstrate how firms in a more competitive market have more incentives to offer advance sales. When a firm increases their advanced sales, the profits of last-minute sales go down; therefore, a firm will aim to sell in advance until the expected profit on the margin for advanced sales equals the marginal profit lost for last-minute sales. When competition goes up, the marginal profit lost at last-minute market for increase advanced sales goes down, so it is in the firms' best interest to increase advanced sales and to decrease last-minute sales. Therefore, competition encourages advanced sales.