Intertemporal Price Discrimination: Preference Knowledge and Endogenous Capacity Choice

When tickets are sold in advance, as with airlines, concerts, theaters and sporting events, in some cases advanced sales are made at a discount and in others a premium is charged. This paper argues that the more preference certain consumers are regarding future purchases the more likely firms will charge premiums. Alternatively, the higher a firms capacity, the more likely advanced purchase discount will be offered. Finally, endogenizing capacity choice, it is then shown that firms with high marginal costs of capacity are likely to choose premium pricing while low marginal costs of capacity results in more frequent discount pricing.