Dynamic Price Dispersion of Storable Goods

Research output: Working paper › Research

Standard

Dynamic Price Dispersion of Storable Goods. / Gao, Cixiu.

2014.

Research output: Working paper › Research

Harvard

Gao, C 2014 'Dynamic Price Dispersion of Storable Goods'.

APA

Gao, C. (2014). Dynamic Price Dispersion of Storable Goods.

Vancouver

Gao C. Dynamic Price Dispersion of Storable Goods. 2014.

Author

Gao, Cixiu. / Dynamic Price Dispersion of Storable Goods. 2014.

Bibtex

@techreport{a48407b50cd84d7bbed06c2c30d8ef08,
title = "Dynamic Price Dispersion of Storable Goods",
abstract = "In this paper I provide an analytical model for the rationale behind supermarket pricing patterns characterized by long-term high prices and temporary price reductions. The model is based on the understanding that temporary price reductions serve the role of price discrimination between consumers with different search costs and willingness to wait. I demonstrate that the high-price-low-price pattern is rational for storable goods. In a Markov-perfect equilibrium, agents{\textquoteright} actions depend on consumer inventory, and purchase decisions are characterized by a critical price. The equilibrium price series consists of one-time price reductions and several consecutive periods in which all retailers offer the regular price. The model predicts that competition is the hardest when consumer inventories are zero, and that at high inventory levels the probability of holding a sale is low.",
keywords = "Faculty of Social Sciences, Price discrimination, Storable goods, Search, Supermarket retailing",
author = "Cixiu Gao",
year = "2014",
language = "English",
type = "WorkingPaper",

}

RIS

TY - UNPB

T1 - Dynamic Price Dispersion of Storable Goods

AU - Gao, Cixiu

PY - 2014

Y1 - 2014

N2 - In this paper I provide an analytical model for the rationale behind supermarket pricing patterns characterized by long-term high prices and temporary price reductions. The model is based on the understanding that temporary price reductions serve the role of price discrimination between consumers with different search costs and willingness to wait. I demonstrate that the high-price-low-price pattern is rational for storable goods. In a Markov-perfect equilibrium, agents’ actions depend on consumer inventory, and purchase decisions are characterized by a critical price. The equilibrium price series consists of one-time price reductions and several consecutive periods in which all retailers offer the regular price. The model predicts that competition is the hardest when consumer inventories are zero, and that at high inventory levels the probability of holding a sale is low.

AB - In this paper I provide an analytical model for the rationale behind supermarket pricing patterns characterized by long-term high prices and temporary price reductions. The model is based on the understanding that temporary price reductions serve the role of price discrimination between consumers with different search costs and willingness to wait. I demonstrate that the high-price-low-price pattern is rational for storable goods. In a Markov-perfect equilibrium, agents’ actions depend on consumer inventory, and purchase decisions are characterized by a critical price. The equilibrium price series consists of one-time price reductions and several consecutive periods in which all retailers offer the regular price. The model predicts that competition is the hardest when consumer inventories are zero, and that at high inventory levels the probability of holding a sale is low.

KW - Faculty of Social Sciences

KW - Price discrimination

KW - Storable goods

KW - Search

KW - Supermarket retailing

M3 - Working paper

BT - Dynamic Price Dispersion of Storable Goods

ER -

ID: 169139076