(Forthcoming in International Journal of Research

(ForthcominginInternationalJournalofResearchinMarketing)Advance-sellingasacompetitivemarketingtoolStevenM.Shugana,*,JinhongXiebaMarketingDepartment,WarringtonCollegeofBusinessAdministration,212BryanHall,CampusBox117155,UniversityofFlorida,Gainesville,FL32611-7155,USAbMarketingDepartment,WarringtonCollegeofBusinessAdministration,212BryanHall,CampusBox117155,UniversityofFlorida,Gainesville,FL32611-7155,USAAbstractAdvancesellingbeforethetimeofconsumption,isnowpossible,forevenverysmallserviceproviders,givennewtechnologies(specifically,web-basedtransactions,biometricsandsmartcardtechnology).Moreover,recentresearchhasrevealedthatadvancesellingcansubstantiallyimproveprofitswithouttraditionalprice-discrimination.However,thatresearchwaslimitedtomonopolysettings.Thispaperexplorestheimpactofcompetitiononadvancesellingdrivenbyconsumeruncertaintyaboutfutureconsumptionstates(ratherthanpricediscrimination).Weemployseveraldifferentdemandspecificationstoprovidethreemajorfindings.First,unlikeyieldmanagement(drivenbyprice-discrimination),therelativeprofitadvantagefromadvanceselling(drivenbyconsumeruncertaintyaboutfutureconsumptionstates)inacompetitivemarketcanbehigherorthesameasthatinamonopolymarket.Foreverydemandspecificationthatweinvestigate,competitiondoesnotdiminishtheadvantageofadvanceselling.Thereasonisthatpricediscriminationleavessomegroups(i.e.,thosebeingdiscriminatedagainst)vulnerabletocompetitors(e.g.,price-discounts)andcompetitionweakensdiscrimination.Incontrast,consumeruncertaintyappliestoallconsumersintheadvanceperiodsoacompetitorisunabletofocusattentionononlyonegroupofconsumers.However,insomedemandspecifications,theexistenceofcompetitorscanlimitthesituationswhenanadvancesellingequilibriumexistsbecauseoftheabilitytounilaterallyspotsellanddamageprofitsofthesellerwhoadvancesells.Second,,insomedemandspecifications,advancesellingcancreateawin-win-winsituationwheretheprofitsoftwocompetitorsincreasewhileconsumersurplusincreasesbecauseadvancesellingallowsgreatermarketparticipation.Third,competitioncanstrengthentheconditionsunderwhichadvancesellingisadvantageouscomparedwithspotselling.Hence,advancesellingcanbeaveryeffectivemarketingtoolinacompetitivesetting(albeitundermorerestrictiveconditionsthaninamonopolysetting).Itisatoolthatcandiminishcompetitionand,unlikeprice-discrimination,increasebuyersurplus.Keywords:Competition;Pricing;Advanceselling;Advancepricing;Advanceticketing;Servicesmarketing1Theauthorsarelistedinalphabeticalorderforlexicographicconvenience;bothauthorscontributedequallyinthepaper.*Correspondingauthor.Tel.:[phone];fax:[phone].E-mailaddresses:[e-mail](SMShugan);[e-mail]1.1TheabilitytoadvancesellAdvancesellingoccurswhensellersselltheirservicesinaperiodadvanceoftheconsumptionperiod(alsocalledthespotperiod).Forexample,anairlinemightsellaticketforafutureflight(i.e.,foruseinthespotperiod)atsomeperiodbeforetheflight(i.e.,theadvanceperiod).Acarwashmightsellaticket(i.e.,intheadvanceperiod)forafuturewashonaspecifieddate(i.e.,thespotperiod).Althoughadvancesellingmayhavealwaysbeenpotentiallyprofitable,untilrecently,pastimpedimentssuchastransactioncostsandarbitragehavelimiteditsusefulness.Transactioncostsoccurwhenbuyersorsellersincuradditionalcoststotransactintheadvanceperiod.Forexample,buyersmayneedtophysicallytraveltosellerstomakeadvancepurchases.Inthepast,thetravelindustry(Gebhart1993,Lollar1992,Mclean1997,O’Brien1991)wasoneofthefewindustriesthathadalow-transactioncostchannel(i.e.,travelagents).Anotherimpedimentwasarbitrage.Arbitrageoccurswhenspeculatorsadvancepurchaseatdiscountedadvancepricesonlytoreselllater.Arbitragehinderstheseller’sabilitytoraisepricesintheconsumptionperiod(i.e.,spotprices).Moreover,somebuyersmayforgoadvancepurchasesandbuylaterfromspeculators.Again,thetravelindustry,whichrequiredgovernmentidentificationfromusers,overcamethisimpediment.Fortunately,recentbreakthroughsintechnology(Shugan2004)arerapidlyanddramaticallyovercomingthesepastimpedimentstoadvanceselling(forbothbusinessandconsumerservices).Newtechnologiesaremakingadvancesellingeconomicallyfeasibleinnumerousindustries,morethananytimeinhistory.Remarkableadvancesininformationtechnology(VarkiandRust1998)areloweringbuyerandsellertransactioncosts,aswellasalmostcompletelyeliminatingtheoverwhelmingproblemofarbitrage.Forexample,web-basedtransactions,SSLencryption,smartcards(i.e.,creditcardsizedticketswithcomputerchips)andbroadbandcommunications,allowcomplexandsecureadvancesalestransactionsfromremotelocationsviawebtechnology(Moad1996,Gathright2001).Fromremotelocations,buyerscanaccesson-linereservationstobuyticketsandpersonalvouchers(e.g.,).Improvingtechnologymaymakeadvancesellingpossibleinmanynewcategoriesincludingdrycleaning,dining,videos(EliashbergandRaju1999),filmexhibitionandproductswithnetworkexternalities(Padmanabhan,Rajiv,andSrinivasan1997,XieandSirbu1995).Technologyisalsohelpingtoovercomethesecondimpediment–arbitrage.Sellersusepersonalizedbar-codedtickets,ticketswith