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Fake Sales: A Dynamic Pricing Perspective

Author

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  • Daniel F. Garrett

Abstract

Some sellers display high “regular” prices, but mark down these prices the vast majority of the time, advertising the good as “on sale” or “discounted”. This note suggests a framework for understanding the practice, emphasising the role of buyer uncertainty about their future valuations for the good. We argue that so‐called “regular” prices set buyers’ expectations regarding future prices, expectations that need not be tethered to the prices actually set. By manipulating upwards buyers’ expectations of future prices, the seller can increase demand for the good at the current “sale” price, increasing profits.

Suggested Citation

  • Daniel F. Garrett, 2019. "Fake Sales: A Dynamic Pricing Perspective," The Japanese Economic Review, Japanese Economic Association, vol. 70(3), pages 375-382, September.
    • Handle: RePEc:bla:jecrev:v:70:y:2019:i:3:p:375-382
    DOI: 10.1111/jere.12239
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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