Resource title

Capacity pricing under uncertainty

Resource image

image for OpenScout resource :: Capacity pricing under uncertainty

Resource description

This paper shows the profit-maximizing pricing strategy of a monopolist selling a fixed capacity before a certain time. The driving example is an airline filling a plane before departure time. The results show that the fear of rationing taking place before departure induces consumers with a high valuation to pay a premium at an earlier date. This premium varies with the number of potential consumers and the number of remaining seats. Another equilibrium is for the monopolist to simply set prices at a high level and leave with unused capacity. We also analyze the incentives for the monopolist to reduce capacity ex ante, in order to increase the likelihood of rationing equilibria to emerge

Resource author

Resource publisher

Resource publish date

Resource language


Resource content type


Resource resource URL

Resource license

Copyright INSEAD. All rights reserved