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“Last-chance” sales: what makes them credible?

Author

Listed:
  • Félix Muñoz García
  • Heriberto González Lozano

Abstract

This paper analyzes the firms’ standard practice of announcing clearance or “last-chance” sales, namely advertising that a particular product is not going to be available in the market anymore. In the context of a two-period signaling game, prices and advertising decisions of firms are analyzed. Then, the set of separating and pooling equilibria is characterized, so that the above usual advertising techniques can be better understood as equilibria of this model for certain parameter values. In particular, this paper shows that, when the firm which continues in the business knows that few of their current customers will come back in future periods, the set of separating equilibria shrinks. That is, fewer future prospects induce all types of firms to compete for current consumers, leading to pooling equilibria in which all firms announce a “last-chance” sale, even if some of them know they will remain in the industry next period. Clasificación JEL: L12, D82.

Suggested Citation

  • Félix Muñoz García & Heriberto González Lozano, 2009. "“Last-chance” sales: what makes them credible?," Ensayos Revista de Economía, Universidad Autónoma de Nuevo León, vol. 28(1), pages 61-80, May.
    • Handle: RePEc:ere:journl:v:28:y:2009:i:1:id:96
    DOI: 10.29105/ensayos28.1-4
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    References listed on IDEAS

    as
    1. Linnemer, Laurent, 2002. "Price and advertising as signals of quality when some consumers are informed," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 931-947, September.
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    5. Volker Nocke & Martin Peitz, 2007. "A Theory of Clearance Sales," Economic Journal, Royal Economic Society, vol. 117(522), pages 964-990, July.
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    Keywords

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    JEL classification:

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

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