A Theory of Clearance Sales
Volker Nocke and
Martin Peitz
Economic Journal, 2007, vol. 117, issue 522, 964-990
Abstract:
Clearance sales are widely used by firms as an intertemporal selling policy, in particular in markets where firms face demand uncertainty and need to choose capacity in advance. Clearance sales consist in charging a high price initially but then lowering the price in the sales period. High-valuation consumers purchase the good at the high initial price so as to avoid rationing at the low price, while low-valuation consumers wait for the price to drop. We develop a simple model of intertemporal monopoly pricing under demand uncertainty, and show that clearance sales may be the optimal intertemporal selling policy. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:ecj:econjl:v:117:y:2007:i:522:p:964-990
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