A theory of clearance sales

Citation

Nocke, V. (2008), "A theory of clearance sales", Strategic Direction, Vol. 24 No. 1. https://doi.org/10.1108/sd.2008.05624aad.009

A theory of clearance sales

A theory of clearance sales

Nocke V., Peitz M. The Economic Journal, July 2007, Vol. 117, No. 522, Start page: 964, No. of pages: 27

Purpose – To characterise the pricing strategy of a monopolist who is uncertain of the level of demand. Design/approach/methodology – Characterizes a clearance sale as discounting supply in the face of rationed demand, in a market with demand uncertainty and supply set in advance. Assumes customers with high and low valuations, high and low demand, and capacity chosen before demand is realized. Includes consumer learning. Findings – Finds that clearance sales policies are intertemporal pricing policies, and are optimal relative to introductory offers. Adds that the monopolist can discriminate effectively between high and low valuation customers by pricing high, then reducing price later. Demonstrates that uniform pricing is optimal when demand is certain, and clearance sales optimal when the optimal price is high, and demand is high; and low when it is low. Research limitations/implications – Assumes no discounting. Suggests extension to further periods, more demand states and more consumer types. Originality/value – Presents a new explanation of pricing under monopoly.ISSN: 0013-0133Reference: 36AU808DOI: 10.1111/j.1468-0297.2007.02074.x

Keywords: Demand, Monopolies, Pricing, Uncertainty