Why Christmas Sale, When Demand is Higher?

Abstract

Employees usually receive bonus before Christmas. To capture their extra money, many shops offer attractive discount. But why? Shouldn’t the equilibrium price be also higher, when demand is higher? Lazear (1986) used a demand function for explanation, but it is invalid for two reasons. First, it is not general enough. Secondly, although monopolists would appreciate the knowledge of the demand function for their goods, they aim for its higher part. Instead of explaining, some other economists simply denied Christmas Sale. This paper applies Hotelling’s (1929) duopoly competition theory to explain Christmas Sale, and price war in general, and finds the result not necessarily dismal. It then invokes a natural property, to make Christmas Sale a real game, i.e., one without equilibrium.

Keywords: Pricing

JEL Classification: L11