An Empirical Test of Price Theories in the Market for Seasonal Goods
Posted: 30 Sep 2015
Date Written: September 28, 2015
Three theories have been proposed in the literature to describe the reason behind sharp price declines observed over a product's short lifecycle in seasonal (perishable) goods markets: Prices decline as a result of (i) inter-temporal price discrimination; (2) a firm's uncertainty about product popularity at the start of the season; (3) decreasing opportunity costs due to product perishability. We first provide empirically testable implications of each theory. Then, using data from a large US specialty apparel retailer, we assess whether these theories have empirical support in the fashion apparel market. Our results indicate that inter-temporal price discrimination and product perishability both contribute to the observed price declines. We do not find empirical support for the impact of retailer’s initial demand uncertainty on observed price declines in our data.
Keywords: Seasonal Goods, Dynamic Pricing, Inter-temporal Price Dscrimination, Demand Learning, Perishability, Retailing, Short life-cycle Goods
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