Retail Pricing and Clearance Sales

Edward Lazear

American Economic Review, 1986, vol. 76, issue 1, 14-32

Abstract: Sellers of new products are faced with having to guess demand conditions to set price appropriately. But sellers are able to adjustprice over time and to learn from past mistakes. Additionally, it is not necessary that all goods be sold with certainty. It is sometimes better to set a high price and to risk no sale. This process is modeledto explain retail pricing behavior and the time distribution of transactions. Prices start high and fall as a function of time on theshelf. The initial price and rate of decline can be predicted and depends on thinness of the market, the proportion of customers who are"window shoppers," and other observable characteristics. Copyright 1986 by American Economic Association.

Date: 1986
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Working Paper: Retail Pricing and Clearance Sales (1984)
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