“Optimal Information Disclosure in Advance Selling with Consumer Heterogeneity in Information Requirements”

Junshan Lin, Shandong University

Chenhang Zeng, Shandong University 

We consider a two-period advance selling model in which consumers are heterogeneous in infor- mation requirements. The seller provides pre-order availability and attributes’ information to informed consumers (who arrive before the product release) to help them learn valuations. We show that the seller chooses either advance selling at a deep discount with no information disclosed, or advance selling at a moderate discount with partial information disclosed. The former is more likely to happen when the fraction of informed consumers is large, or consumer valuation dispersion is small. Furthermore, with aggregate demand uncertainty, improving consumers’ knowledge for the product in advance enables the seller to target high-valuation informed consumers to extract more profits. Hence, other than no or par- tial information disclosure, the seller may choose to disclose all information in advance and charge a pre-order premium price.