Optimal Information Disclosure in Advance Selling

Abstract

Consumers commonly face valuation uncertainty when making advance purchase decisions. At the advance selling stage, revealing product information is potentially profitable, as it reduces consumers' valuation uncertainty and hence raises their willingness to pay. However, it may also weaken a seller's ability to sequentially screen heterogeneous consumers, as more consumers may have incentives to purchase in advance. We show that the trade-off between the two effects determines the optimal amount of information disclosed to consumers, and furthermore, we provide a complete characterization of the optimal information disclosure and pricing strategy in advance selling. Our results explain why different disclosure policies are adopted in advance selling in real practice, and provide important theoretical and practical implications.