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A Theory of Clearance Sales

Author

Listed:
  • Volker Nocke
  • Martin Peitz

Abstract

Clearance sales are widely used by firms as an intertemporal selling policy, in particular in markets where firms face demand uncertainty and need to choose capacity in advance. Clearance sales consist in charging a high price initially but then lowering the price in the sales period. High-valuation consumers purchase the good at the high initial price so as to avoid rationing at the low price, while low-valuation consumers wait for the price to drop. We develop a simple model of intertemporal monopoly pricing under demand uncertainty, and show that clearance sales may be the optimal intertemporal selling policy. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

Suggested Citation

  • Volker Nocke & Martin Peitz, 2007. "A Theory of Clearance Sales," Economic Journal, Royal Economic Society, vol. 117(522), pages 964-990, July.
    • Handle: RePEc:ecj:econjl:v:117:y:2007:i:522:p:964-990
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