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Loss Leader Pricing and Rain Check Policy

Author

Listed:
  • James D. Hess

    (North Carolina State University)

  • Eitan Gerstner

    (Georgetown University)

Abstract

Loss leader pricing and rain check policies are common in retail markets, yet research on these topics is surprisingly scarce. In this paper, we study the effects of leader pricing and rain check policy on stores' profits and market outcomes. Suppose stores can accurately predict demand. Might they still run out of stock? We investigate whether such a result is plausible when stores can offer rain checks. The paper also helps resolve an issue that has recently attracted much attention: Should the FTC repeal its rule prohibiting stock outs of advertised sale items?

Suggested Citation

  • James D. Hess & Eitan Gerstner, 1987. "Loss Leader Pricing and Rain Check Policy," Marketing Science, INFORMS, vol. 6(4), pages 358-374.
    • Handle: RePEc:inm:ormksc:v:6:y:1987:i:4:p:358-374
    DOI: 10.1287/mksc.6.4.358
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