Management, forthcoming 1 A DEMAND-BASED MODEL FOR THE ADVANCED AND SPOT PRICING OF SERVICES

This paper models the probability of non-consumption of a service by advance buyers as well as the re-selling of the relinquished capacity, and investigates its effect on the pricing of advance and spot demand of services. The model shows that advance prices are always lower than spot prices, since advance buyers provide for higher potential revenue due to the non-consumption effect. Another significant finding of the model would be the conditions under which market failure occurs i.e. when the firm does not sell in advance nor at consumption time. It is also extended to show that providing a refund to advance buyers, as insurance against non-consumption, may be profitable