Informational Rigidities and the Stickiness of Temporary Sales

50 Pages Posted: 24 Aug 2013

See all articles by Eric Anderson

Eric Anderson

Northwestern University - Department of Marketing

Emi Nakamura

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Duncan Simester

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Jon Steinsson

Columbia University - Graduate School of Arts and Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Jón Steinsson

Columbia University

Date Written: August 2013

Abstract

We use unique price data to study how retailers react to underlying cost changes. Temporary sales account for 95% of price changes in our data. Simple models would, therefore, suggest that temporary sales play a central role in price responses to cost shocks. We find, however, that, in response to a wholesale cost increase, the entire increase in retail prices comes through regular price increases. Sales actually respond temporarily in the opposite direction from regular prices, as though to conceal the price hike. Additional evidence from responses to commodity cost and local unemployment shocks, as well as broader evidence from BLS data reinforces these findings. We present institutional evidence that sales are complex contingent contracts, determined substantially in advance. We show theoretically that these institutional practices leave little money “on the table”: in a price-discrimination model of sales, dynamically adjusting the size of sales yields only a tiny increase in profits.

Suggested Citation

Anderson, Eric and Nakamura, Emi and Simester, Duncan and Steinsson, Jon and Steinsson, Jón, Informational Rigidities and the Stickiness of Temporary Sales (August 2013). NBER Working Paper No. w19350, Available at SSRN: https://ssrn.com/abstract=2315435

Eric Anderson (Contact Author)

Northwestern University - Department of Marketing ( email )

Kellogg School of Management
2001 Sheridan Rd.
Evanston, IL 60208
United States

Emi Nakamura

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duncan Simester

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Management Science
Cambridge, MA 02142
United States
617-258-0679 (Phone)
617-258-7597 (Fax)

Jon Steinsson

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jón Steinsson

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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