Why Don't Retail Prices Vary Seasonally with Demand?

63 Pages Posted: 12 Jun 2019

See all articles by R. Butters

R. Butters

Indiana University

Daniel W. Sacks

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Boyoung Seo

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Date Written: May 25, 2019

Abstract

A growing literature suggests that uniform pricing in the face of large demand fluctuations represents a substantial deviation from profit maximization -- a puzzle for economists. We show that this need not be the case, through an investigation of quantity and pricing fluctuations at seasonal frequencies. Focusing on canned soup and light beer, we use scanner data from 17,000 stores to show that seasonal fluctuations in quantities are an order of magnitude larger than prices. Although observed prices fluctuate less than optimal prices in a simple benchmark model, retailers lose little profit from seasonally uniform prices, because demand never approaches becoming inelastic.

Keywords: seasonality, demand, price elasticity of demand, optimal pricing

JEL Classification: D40, L11, L81

Suggested Citation

Butters, R. and Sacks, Daniel W. and Seo, Boyoung, Why Don't Retail Prices Vary Seasonally with Demand? (May 25, 2019). Kelley School of Business Research Paper No. 19-21. Available at SSRN: https://ssrn.com/abstract=3394301 or http://dx.doi.org/10.2139/ssrn.3394301

R. Butters (Contact Author)

Indiana University ( email )

1309 E. Tenth St.
Bloomington, IN 47405
United States

HOME PAGE: http://https://kelley.iu.edu/BEPP/faculty/page14113.cfm?ID=46947

Daniel W. Sacks

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

Boyoung Seo

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-3667 (Phone)

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