Advance Selling for Services

by Steven Shugan, Jinhong Xie



Advance selling can be profitable when consumers are uncertain about their future consumption state. At the time of consumption, that uncertainty is resolved, but buyer states still remain unobservable to sellers. Consequently, buyer and seller information is symmetric in advance but asymmetric at consumption (i.e., sellers have an informational disadvantage in the consumption period relative to the advance period). Therefore, sellers can profit from transacting in the advance period when they are at less of a disadvantage. New technologies (e.g., biometrics, electronic tickets, smart cards, online prepayments, and new e-commerce technologies) also enhance the profitability of advance selling by lowering advance-selling costs and restraining arbitrage.

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