Revenue management by sequential screening

We consider optimal pricing to consumers who are privately informed about both their valuations for the product and when they learn their valuations. Initially, consumers have private information about the distribution of their valuations and when they will learn their valuations, and over time, consumers privately learn their valuations. Because of its importance in many revenue management problems, we focus mainly on the case in which consumers with higher expected valuations, e.g., business travelers, learn their true valuations later than consumers with lower expected valuations, e.g., leisure travelers. Using a mechanism design approach, we show that the optimal selling mechanism is a menu of expiring refund contracts. Consumers purchase the good in advance but have the option to return it for a refund immediately after learning their valuations. We identify conditions under which the firm can implement the first-best or complete information allocation, thereby extracting the entire (expected) consumer surplus. We also characterize the optimal menu of refund contracts when the first best cannot be achieved. We thank the seminar participants at Stanford University, University of Southern California, New York University, Carnegie Mellon University, University of Rochester, University of Maryland, Washington University in St. Louis, Columbia University, INSEAD, Wharton, University of Toronto, University of Texas at Austin, Duke University and Northwestern University for their helpful feedback.