Competing for Strategic Buyers

Abstract

Although revenue-management markets are rarely monopolistic, this assumption is typically made in the literature. In this paper, multiple sellers in total offer K identical goods to n>K buyers with private persistent valuations. Goods are traded in continuous time before some deadline. All buyers enter the market simultaneously, are fully forward-looking and do not discount. I find a payoff-unique equilibrium in which allocations, prices and payoffs are equivalent under monopoly and oligopoly, if and only if a monopolist (with or without commitment power) optimally sells her capacity with probability one. All sellers set identical prices that jump after each sale and otherwise descend continuously. There is no incentive to undercut competitors' prices, because each seller anticipates that, by letting her rivals sell out, she will become a monopolist. If sellers can commit to future prices, the largest seller depletes her capacity at last, and, for fixed K, industry profits increase in her capacity.

Keywords: Dynamic Pricing, Revenue Management, Oligopoly

JEL Classification: D43, L13, D82, D4, L1