NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Informational Rigidities and the Stickiness of Temporary Sales

Eric Anderson, Benjamin A. Malin, Emi Nakamura, Duncan Simester, Jón Steinsson

NBER Working Paper No. 19350
Issued in August 2013
NBER Program(s):   EFG   IO   ME

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.

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This paper was revised on June 16, 2015

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Document Object Identifier (DOI): 10.3386/w19350

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