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- Title
A Theory of Clearance Sales.
- Authors
Nocke, Volker; Peitz, Martin
- 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.
- Subjects
SPECIAL sales; CONTINGENT valuation; CONSUMER behavior; CONSUMPTION (Economics); PRICE cutting; MARKETING strategy; RATIO analysis
- Publication
Economic Journal, 2007, Vol 117, Issue 522, p964
- ISSN
0013-0133
- Publication type
Article
- DOI
10.1111/j.1468-0297.2007.02074.x