Working Paper: CEPR ID: DP14113
Authors: Sandro Shelegia; Christopher Wilson
Abstract: To better understand temporary price reductions or ‘sales’, this paper presents a generalized ‘clearinghouse’ framework of advertised sales and explores some example applications. By viewing the firms as competing in utility and amending the conventional tie-break rule, we allow for multiple dimensions of firm heterogeneity in complex market environments. Moreover, we i) provide original insights into the number and types of firms that use sales, ii) offer new results on how firm heterogeneity affects market outcomes, iii) extend a common empirical ‘cleaning’ procedure, and iv) analyze a family of activities in sales markets, including persuasive advertising and obfuscation.
Keywords: sales; price dispersion; advertising; clearinghouse; heterogeneity
JEL Codes: L13; D43; M3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Advertising costs (M37) | Number of firms using sales (L25) |
| Firm heterogeneity (D21) | Number and types of firms utilizing sales (L25) |
| Lower shares of loyal consumers and high profitability (D26) | Use of advertised sales (M31) |
| Advertising costs (M37) | Changes in number of firms using sales (L25) |
| Lower advertising costs (M37) | Sales behavior (M31) |