Why Don’t Prices Rise during Periods of Peak Demand? Synchronize Demand to Relax Competition

Chun-Hui Miao

The B.E. Journal of Economic Analysis & Policy, 2016, vol. 16, issue 3, 1585-1597

Abstract: During periods of peak demand, frequent markdowns present an empirical puzzle. Based on the idea that stores face capacity constraints in times of high shopping volume, we show that stores keep their off-season prices high in order to lure all consumers to shop around the same time. This relaxes competition and allows stores to raise prices. Due to binding capacity constraints, stores randomize their prices. Thus, our model offers a unified explanation for both the countercyclicality and the high frequency of price changes during periods of peak demand.

Keywords: capacity constraint; peak demand; price competition (search for similar items in EconPapers)
JEL-codes: D00 L00 L40 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1515/bejeap-2015-0238

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