Intertemporal Price Discrimination PDF Download

Temporary price promotions, or sales, are common in many markets. Using retail scanner data, I find that manufacturers, not retailers, control the timing of sales, while retailers exercise some control over the magnitude of the price decrease. I also find that observed sale policy is more consistent with intertemporal price discrimination than with other explanations. I develop an empirically tractable model that is consistent with these facts and use it to show that sales generally improve consumer surplus and total welfare relative to static pricing. I also find that the effects of market concentration on sales are ambiguous; firms must have some degree of market power for sales to occur, but there are also scenarios when an increase in market power can decrease the occurrence of sales or eliminate them entirely.