Forward and Spot Buying: Yield Management of Information Goods

Abstract

Information goods are commonly sold either at spot prices or through forward buying at discounted fares. In this chapter, we consider a seller that offers an information good through spot buying, forward buying at a reduced price, or a combination of the two and address his yield management problem when he is either a price-taker or a price-setter. When the seller is a price-taker, the seller's choice is whether to offer the good for only forward buying, only spot buying, or a combination of the two. When the seller is a price-setter, the seller’s objective is to choose the offering(s) and the price level(s). For the price-taker case, we show that when both the spot price and the discount on forward buying are moderate in value, the seller chooses the mixed strategy of offering both forward and spot buying simultaneously. For non-moderate values of the prices, a pure strategy (offering only spot buying or only forward buying) is optimal. For the price-setter case, we show how those selling information goods can increase their revenues by using a mixed offering strategy. The mixed strategy lends itself to second-degree price discrimination by the seller when there are groups of customers potentially heterogeneous in terms of the distribution of their reservation prices.