Paper #331

Title:

Timing of seasonal sales

Authors:

Pascal Courty and Li Hao

Date:

November 1998

Abstract:

We present a model of timing of seasonal sales where stores choose several designs at the beginning of the season without knowing wich one, if any, will be fashionable. Fashionable designs have a chance to fetch high prices in fashion markets while non-fashionable ones must be sold in a discount market. In the beginning of the season, stores charge high prices in the hope of capturing their fashion market. As the end of the season approaches with goods still on the shelves, stores adjust downward their expectations that they are carrying a fashionable design, and may have sales to capture the discount market. Having a greater number of designs induces a store to put one of them on sales earlier to test the market. Moreover, price competition in the discount market induces stores to start sales earlier because of a greater perceived first-mover advantage in capturing the discount market. More competition, perhaps due to decreases in the cost of product innovation, makes sales occur even earlier. These results are consistent with the observation that the trend toward earlier sales since mid-1970's coincides with increasing product varieties in fashion good markets and increasing store competition.

Keywords:

Seasonal sales, clearance sales, pricing policies, competitive pricing

JEL codes:

D40, L10

Area of Research:

Business Economics and Industrial Organization

Published in:

Journal of Business October 1999

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