Timing of Seasonal Sales

31 Pages Posted: 17 Sep 1998

See all articles by Pascal Courty

Pascal Courty

University of Victoria; European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR)

Li Hao

University of Hong Kong

Multiple version iconThere are 2 versions of this paper

Date Written: June 10, 1998

Abstract

We present a model of timing of seasonal sales where stores choose several designs at the beginning of the season without knowing which one, if any, will be fashionable. Fashionable designs have a chance to fetch high prices in fashion markets while non-fashionable ones must be sold in a discount market. In the beginning of the season, stores charge high prices in the hope of capturing their fashion market. As the end of the season approaches with goods still on the shelves, stores adjust downward their expectations that they are carrying a fashionable design, and may have sales to capture the discount market. Having a greater number of designs induces a store to put one of them on sale earlier to test the market. Moreover, price competition in the discount market induces stores to start sales earlier because of a greater perceived first-mover advantage in capturing the discount market. More competition, perhaps due to decreases in the cost of product innovation, makes sales occur even earlier. These results are consistent with the observation that the trend toward earlier sales since mid-1970's coincides with increasing product varieties in fashion good markets and increasing store competition.

JEL Classification: L12, L81

Suggested Citation

Courty, Pascal and Hao, Li, Timing of Seasonal Sales (June 10, 1998). Available at SSRN: https://ssrn.com/abstract=95435 or http://dx.doi.org/10.2139/ssrn.95435

Pascal Courty (Contact Author)

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Li Hao

University of Hong Kong ( email )

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