Advance selling in the presence of product diffusion effect
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Product diffusion refers to the phenomenon that the later demand is dependent on the early sales. To investigate how a firm’s advance selling strategy is affected by the effect of product diffusion, we consider a monopolist seller who sells a fashionable product in a market that comprises of myopic and strategic consumers over two periods (i.e., the advance selling season and the regular selling season). For a linear product diffusion effect we find that, when the effect of product diffusion is positive, the seller may set an extremely high advance selling price to induce the strategic consumers to purchase in the regular selling season, which is counter-intuitive. Moreover, the optimal procurement quantity for the seller may increase in the negative effect of product diffusion and decrease in the amount of strategic consumers. When we extend our model to consider a concave quadratic product diffusion effect, however, the optimal procurement quantity is concave in the amount of strategic consumers. Numerical studies are further presented to discuss the managerial insights.
KeywordsAdvance selling product diffusion strategic consumer behavior interface on marketing and operations management
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The authors would like to thank the editor and referees for their insightful suggestions to significantly improve the quality of the paper. This research was supported by the National Natural Science Foundation of China under Grants Nos. 71371176, 71571115 and 71320107004.
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