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Informational Rigidities and the Stickiness of Temporary Sales
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Informational Rigidities and the Stickiness of Temporary Sales

Author

Listed:
  • Eric Anderson
  • Benjamin A. Malin
  • Emi Nakamura
  • Duncan Simester
  • Jón Steinsson

Abstract

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.

Suggested Citation

  • Eric Anderson & Benjamin A. Malin & Emi Nakamura & Duncan Simester & Jón Steinsson, 2015. "Informational Rigidities and the Stickiness of Temporary Sales," Staff Report 513, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:513
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade deals; Retail sales; Regular retail prices;
    All these keywords.

    JEL classification:

    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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