Dynamic Price Dispersion of Storable Goods
Publikation: Working paper › Forskning
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Dynamic Price Dispersion of Storable Goods. / Gao, Cixiu.
2014.Publikation: Working paper › Forskning
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TY - UNPB
T1 - Dynamic Price Dispersion of Storable Goods
AU - Gao, Cixiu
PY - 2014
Y1 - 2014
N2 - In this paper I provide an analytical model for the rationale behind supermarket pricing patterns characterized by long-term high prices and temporary price reductions. The model is based on the understanding that temporary price reductions serve the role of price discrimination between consumers with different search costs and willingness to wait. I demonstrate that the high-price-low-price pattern is rational for storable goods. In a Markov-perfect equilibrium, agents’ actions depend on consumer inventory, and purchase decisions are characterized by a critical price. The equilibrium price series consists of one-time price reductions and several consecutive periods in which all retailers offer the regular price. The model predicts that competition is the hardest when consumer inventories are zero, and that at high inventory levels the probability of holding a sale is low.
AB - In this paper I provide an analytical model for the rationale behind supermarket pricing patterns characterized by long-term high prices and temporary price reductions. The model is based on the understanding that temporary price reductions serve the role of price discrimination between consumers with different search costs and willingness to wait. I demonstrate that the high-price-low-price pattern is rational for storable goods. In a Markov-perfect equilibrium, agents’ actions depend on consumer inventory, and purchase decisions are characterized by a critical price. The equilibrium price series consists of one-time price reductions and several consecutive periods in which all retailers offer the regular price. The model predicts that competition is the hardest when consumer inventories are zero, and that at high inventory levels the probability of holding a sale is low.
KW - Faculty of Social Sciences
KW - Price discrimination
KW - Storable goods
KW - Search
KW - Supermarket retailing
M3 - Working paper
BT - Dynamic Price Dispersion of Storable Goods
ER -
ID: 169139076