Informational Rigidities and the Stickiness of Temporary Sales / Eric Anderson, Benjamin A. Malin, Emi Nakamura, Duncan Simester, Jón Steinsson.

Format:

Book

Author/Creator:

Anderson, Eric.

Contributor:

National Bureau of Economic Research.

Malin, Benjamin A.

Nakamura, Emi.

Simester, Duncan.

Steinsson, Jón.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19350.

NBER working paper series no. w19350

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

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.

Notes:

Print version record

August 2013.