The economic value of using advance booking of orders

The advance booking of orders (ABO) is the practice of selling units of an item (either products or services) in advance of the actual availability of the item. The question of whether or not advance bookings should be offered is considered. Closed-form analytical results are derived for the expected profilts for the classic single-period inventory (newsboy) problem both with and without advance bookings. These two profit expressions allow us to quantify the benefits of ABO. The benefits include both the yield-management benefits associated with the stimulation of demand and the planning and control benefits of using advance booking as a leading indicator of total demand.