IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/41959.html
   My bibliography  Save this paper

Sales and collusion in a market with storage

Author

Listed:
  • Nava, Francesco

Abstract

Sales are a widespread and well-known phenomenon that has been documented in several product markets. Regularities in such periodic price reductions appear to suggest that the phenomenon cannot be entirely attributed to random variations in supply, demand, or the aggregate price level. Certain sales are traditional and so well publicized that it is difficult to justify them as devices to separate informed from uninformed consumers. This paper presents a model in which sellers want to reduce prices periodically in order to improve their ability to collude over time. In particular, the study shows that if buyers have heterogeneous storage technologies, periodic sales may facilitate collusion by magnifying intertemporal linking in consumers' decisions. The stability and the profitability of different sale strategies is then explored. The optimal sales discount and timing of sales are characterized. A trade-off between cartel size and aggregate profits arises.

Suggested Citation

  • Nava, Francesco, 2006. "Sales and collusion in a market with storage," LSE Research Online Documents on Economics 41959, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:41959
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/41959/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Igal Hendel & Aviv Nevo, 2006. "Sales and consumer inventory," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 543-561, September.
    2. Faruk Gul, 1987. "Noncooperative Collusion in Durable Goods Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 248-254, Summer.
    3. Hong, Pilky & McAfee, R. Preston & Nayyar, Ashish, 2002. "Equilibrium Price Dispersion with Consumer Inventories," Journal of Economic Theory, Elsevier, vol. 105(2), pages 503-517, August.
    4. David Bell & Christian Hilber, 2006. "An empirical test of the Theory of Sales: Do household storage constraints affect consumer and store behavior?," Quantitative Marketing and Economics (QME), Springer, vol. 4(2), pages 87-117, June.
    5. Joel Sobel, 1984. "The Timing of Sales," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 353-368.
    6. Tülin Erdem & Susumu Imai & Michael Keane, 2003. "Brand and Quantity Choice Dynamics Under Price Uncertainty," Quantitative Marketing and Economics (QME), Springer, vol. 1(1), pages 5-64, March.
    7. Spagnolo, Giancarlo, 1999. "On Interdependent Supergames: Multimarket Contact, Concavity, and Collusion," Journal of Economic Theory, Elsevier, vol. 89(1), pages 127-139, November.
    8. Pasquale Schiraldi & Francesco Nava, 2012. "Resale and Collusion in A Dynamic Market for Semidurable Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 60(2), pages 274-298, June.
    9. Salop, S & Stiglitz, J E, 1982. "The Theory of Sales: A Simple Model of Equilibrium Price Dispersion with Identical Agents," American Economic Review, American Economic Association, vol. 72(5), pages 1121-1130, December.
    10. James D. Dana Jr & Yuk‐Fai Fong, 2011. "Long‐Lived Consumers, Intertemporal Bundling and Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 59(4), pages 609-629, December.
    11. Igal Hendel & Aviv Nevo, 2006. "Sales and Consumer Inventory," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 543-561, Autumn.
    12. Igal Hendel & Paolo Dudine & Alessandro Lizzeri, 2006. "Storable Good Monopoly: The Role of Commitment," American Economic Review, American Economic Association, vol. 96(5), pages 1706-1719, December.
    13. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francesco Nava & Pasquale Schiraldi, 2014. "Sales And Collusion In A Market With Storage," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 791-832, June.
    2. Aniko Ory, 2016. "Consumers on a Leash: Advertised Sales and Intertemporal Price Discrimination," Cowles Foundation Discussion Papers 2047, Cowles Foundation for Research in Economics, Yale University.
    3. Ruochen Li, 2021. "Consumer stockpiling and demand elasticity biases: A theoretical note with applications," Manchester School, University of Manchester, vol. 89(6), pages 610-618, December.
    4. Fabio Antoniou & Raffaele Fiocco, 2023. "Storable Good Market With Intertemporal Cost Variations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 361-385, February.
    5. Berck, Peter & Brown, Jennifer & Perloff, Jeffrey M. & Villas-Boas, Sofia Berto, 2008. "Sales: Tests of theories on causality and timing," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1257-1273, November.
    6. Navid Mojir & K. Sudhir, 2014. "Price Search Across Time and Across Stores," Cowles Foundation Discussion Papers 1942R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2019.
    7. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1445-1488, December.
    8. Igal Hendel & Aviv Nevo, 2013. "Intertemporal Price Discrimination in Storable Goods Markets," American Economic Review, American Economic Association, vol. 103(7), pages 2722-2751, December.
    9. Fabio Antoniou & Raffaele Fiocco, 2019. "Strategic inventories under limited commitment," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 695-729, September.
    10. Navid Mojir & K. Sudhir, 2014. "A Model of Multi-pass Search: Price Search across Stores and Time," Cowles Foundation Discussion Papers 1942R2, Cowles Foundation for Research in Economics, Yale University, revised Feb 2020.
    11. Ribeiro, Ricardo, 2010. "Consumer demand for variety: intertemporal effects of consumption, product switching and pricing policies," MPRA Paper 25812, University Library of Munich, Germany.
    12. Février, Philippe & Wilner, Lionel, 2016. "Do consumers correctly expect price reductions? Testing dynamic behavior," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 25-40.
    13. Michael P. Keane, 2013. "Panel data discrete choice models of consumer demand," Economics Papers 2013-W08, Economics Group, Nuffield College, University of Oxford.
    14. Navid Mojir & K. Sudhir, 2014. "Price Search Across Stores and Across Time," Cowles Foundation Discussion Papers 1942, Cowles Foundation for Research in Economics, Yale University, revised Mar 2016.
    15. Hinnosaar, Marit, 2016. "Time inconsistency and alcohol sales restrictions," European Economic Review, Elsevier, vol. 87(C), pages 108-131.
    16. Katja Seim & Michael Sinkinson, 2016. "Mixed pricing in online marketplaces," Quantitative Marketing and Economics (QME), Springer, vol. 14(2), pages 129-155, June.
    17. Christopher Hansman & Harrison Hong & Áureo de Paula & Vishal Singh, 2020. "A Sticky-Price View of Hoarding," NBER Working Papers 27051, National Bureau of Economic Research, Inc.
    18. Kozo Ueda & Kota Watanabe & Tsutomu Watanabe, 2021. "Household Inventory, Temporary Sales, and Price Indices," CARF F-Series CARF-F-520, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    19. Aguirregabiria, Victor & Gu, Jiaying & Luo, Yao, 2021. "Sufficient statistics for unobserved heterogeneity in structural dynamic logit models," Journal of Econometrics, Elsevier, vol. 223(2), pages 280-311.
    20. Chan, Tat Y. & Narasimhan, Chakravarthi & Yoon, Yeujun, 2017. "Advertising and price competition in a manufacturer-retailer channel," International Journal of Research in Marketing, Elsevier, vol. 34(3), pages 694-716.

    More about this item

    Keywords

    storage; sales; collusion; cartel size; repeated games.;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:41959. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.