When Does a Retailer's Advance Selling Capability Benefit Manufacturer, Retailer, or Both?

Advance selling (AS) from a retailer to consumers is commonly observed in practice. With an AS capability, a retailerhas the option to sell in advance or not. Having the AS option seems to increase flexibility and thus profit for a retai-ler. However, we show that the AS option can hurt the retailer’s profit as well as supply chain performance. We identifytwo thresholds for a product’s marginal production cost. A retailer’s AS option benefits both the manufacturer and retailerwhen the marginal production cost is high, that is, above both thresholds. It benefits the manufacturer but hurts the retai-ler when the marginal production cost is moderate, that is, between the two thresholds. The result is ambiguous whenthe marginal production cost is low, that is, below both thresholds. We find that consumer valuation uncertainty underAS is the key driving force for the surprising result that having the retailer’s AS option can hurt the retailer. When com-pared to the scenario where the retailer does not have the AS option, we find that the manufacturer’s optimal wholesaleprice weakly decreases under the retailer’s AS option if the marginal production cost is high. The statement is reversed ifthe marginal production cost is moderate or low.