Informational Rigidities and the Stickiness of Temporary Sales

Eric Anderson, Emi Nakamura, Duncan Simester, Jón Steinsson

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

Frequent price changes do not imply a rapid response of prices to economic shocks if the price changes are based on old information. We study the extent of such information "stickiness" for temporary sales. Institutionally, we describe how and why temporary sales are "sticky plans" that are updated infrequently, despite the occurrence of frequent price changes. We then study the empirical characteristics of sales and regular price changes using a unique dataset from a large retailer, containing direct measures of both regular prices and sales, in addition to wholesale prices. The timing and magnitude of regular price changes respond strongly to wholesale price changes and to aggregate economic shocks, while temporary sales are unresponsive. Finally, we show that sales account for the majority of the observed cross-sectional heterogeneity in the frequency of price changes, as well as the downward sloping hazard of retail price changes.

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Document Object Identifier (DOI): 10.3386/w19350

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