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How Retailers Determine Which Products Should Go on Sale: Evidence From Store-Level Data

  • Daniel Hosken

    ()

  • David Reiffen

    ()

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    Recent theoretical research on retail pricing dynamics provides an explanation of why retailers periodically put items on sale, even when their costs are unchanged. The authors extend this research to show that more popular items (i.e., those that appeal to a wide range of consumers) are more likely to go on sale. One implication of the proposed model is that a good is more likely to be on sale when demand for the good is at its season peak (e.g., eggs at Easter). This implication is tested using store-level retail price data, and the prediction is borne out for the categories of goods that are examined. Additional tests also support the premise that popularity and frequency of sales are positively related. Copyright Kluwer Academic Publishers 2004

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    Article provided by Springer in its journal Journal of Consumer Policy.

    Volume (Year): 27 (2004)
    Issue (Month): 2 (June)
    Pages: 141-177

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    Handle: RePEc:kap:jcopol:v:27:y:2004:i:2:p:141-177
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    1. Sobel, Joel, 1984. "The Timing of Sales," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 353-68, July.
    2. Conlisk, John & Gerstner, Eitan & Sobel, Joel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 489-505, August.
    3. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
    4. Peter E. Rossi & Judith A. Chevalier & Anil K. Kashyap, 2002. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," Yale School of Management Working Papers ysm291, Yale School of Management.
    5. Banks, J. & Moorthy, S., 1994. "A Model of Price Promotions with Consumer Search," Papers 95-01, Rochester, Business - Marketing Science.
    6. Martin Pesendorfer, 2002. "Retail Sales: A Study of Pricing Behavior in Supermarkets," The Journal of Business, University of Chicago Press, vol. 75(1), pages 33-66, January.
    7. Warner, Elizabeth J & Barsky, Robert B, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 321-52, May.
    8. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
    9. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-91, June.
    10. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 2005. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," Macroeconomics 0505012, EconWPA.
    11. Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," The Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July.
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