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Learning, Forgetting, and Sales

  • Villas-Boas, Sofia B
  • Villas-Boas, Miguel

Sellers of almost any product or service rarely keep their prices constant through time, and frequently offer price discounts or sales. This paper investigates an explanation of sales as a way for uninformed consumers to be willing to experience the product, and learn about its fit, and where informed consumers may forget about (or change) their preferences. We investigate the role of the rate of forgetting on the timing between sales, and of the rate of learning and menu costs on the length of a sale. We also investigate the effect of a seller carrying multiple products on the pattern of sales. Using price series from supermarket categories, and given the assumed simplified preference structure, we obtain empirical estimates of the rates of learning and forgetting, and of the other model parameters.

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Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt7td275hv.

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Date of creation: 01 Jun 2006
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Handle: RePEc:cdl:agrebk:qt7td275hv
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  1. Aghion Philippe & Bolton, Patrick & Harris Christopher & Jullien Bruno, 1991. "Optimal learning by experimentation," CEPREMAP Working Papers (Couverture Orange) 9104, CEPREMAP.
  2. Ram C. Rao, 1991. "Pricing and Promotions in Asymmetric Duopolies," Marketing Science, INFORMS, vol. 10(2), pages 131-144.
  3. Doyle, Chris, 1986. "Intertemporal Price Discrimination, Uncertainty and Introductory Offers," Economic Journal, Royal Economic Society, vol. 96(380a), pages 71-82, Supplemen.
  4. Villas-Boas, Sofia B., 2007. "Vertical relationships between manufacturers and retailers: inference with limited data," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6gz1t778, Department of Agricultural & Resource Economics, UC Berkeley.
  5. Ying Zhao, 2006. "Price Dispersion in the Grocery Market," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1175-1192, May.
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  7. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
  8. J. Miguel Villas-Boas, 1993. "Predicting Advertising Pulsing Policies in an Oligopoly: A Model and Empirical Test," Marketing Science, INFORMS, vol. 12(1), pages 88-102.
  9. 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.
  10. Eric T. Anderson & Duncan I. Simester, 1998. "The Role of Sale Signs," Marketing Science, INFORMS, vol. 17(2), pages 139-155.
  11. Vijay Mahajan & Eitan Muller, 1986. "Reply—Reflections on Advertising Pulsing Policies for Generating Awareness for New Products," Marketing Science, INFORMS, vol. 5(2), pages 110-111.
  12. Ram C. Rao & Ramesh V. Arjunji & B. P. S. Murthi, 1995. "Game Theory and Empirical Generalizations Concerning Competitive Promotions," Marketing Science, INFORMS, vol. 14(3_supplem), pages G89-G100.
  13. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  14. Padilla A. Jorge, 1995. "Revisiting Dynamic Duopoly with Consumer Switching Costs," Journal of Economic Theory, Elsevier, vol. 67(2), pages 520-530, December.
  15. Rajiv Lal & J. Miguel Villas-Boas, 1998. "Price Promotions and Trade Deals with Multiproduct Retailers," Management Science, INFORMS, vol. 44(7), pages 935-949, July.
  16. Pashigian, B Peter, 1988. "Demand Uncertainty and Sales: A Study of Fashion and Markdown Pricin g," American Economic Review, American Economic Association, vol. 78(5), pages 936-53, December.
  17. Nitin Mehta & Surendra Rajiv & Kannan Srinivasan, 2004. "Role of Forgetting in Memory-Based Choice Decisions: A Structural Model," Quantitative Marketing and Economics, Springer, vol. 2(2), pages 107-140, June.
  18. Sobel, Joel, 1991. "Durable Goods Monopoly with Entry of New Consumers," Econometrica, Econometric Society, vol. 59(5), pages 1455-85, September.
  19. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-49, October.
  20. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
  21. Dirk Bergemann & Juuso Valimaki, 2004. "Monopoly Pricing of Experience Goods," Cowles Foundation Discussion Papers 1463R, Cowles Foundation for Research in Economics, Yale University, revised May 2005.
  22. Anderson, Eric T. & Kumar, Nanda & Rajiv, Surendra, 2004. "A comment on: "Revisiting dynamic duopoly with consumer switching costs"," Journal of Economic Theory, Elsevier, vol. 116(1), pages 177-186, May.
  23. Villas-Boas, J Miguel, 1995. "Models of Competitive Price Promotions: Some Empirical Evidence from the Coffee and Saltine Crackers Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 85-107, Spring.
  24. Vijay Mahajan & Eitan Muller, 1986. "Advertising Pulsing Policies for Generating Awareness for New Products," Marketing Science, INFORMS, vol. 5(2), pages 89-106.
  25. Fred M. Feinberg, 2001. "On Continuous-Time Optimal Advertising Under S-Shaped Response," Management Science, INFORMS, vol. 47(11), pages 1476-1487, November.
  26. 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.
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