Thursday, August 15, 2019
R. Butters, Indiana University, Daniel W. Sacks, Indiana University - Kelley School of Business - Department of Business Economics & Public Policy, and Boyoung Seo, Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ask Why Don't Retail Prices Vary Seasonally with Demand?
ABSTRACT: A growing literature suggests that uniform pricing in the face of large demand fluctuations represents a substantial deviation from profit maximization -- a puzzle for economists. We show that this need not be the case, through an investigation of quantity and pricing fluctuations at seasonal frequencies. Focusing on canned soup and light beer, we use scanner data from 17,000 stores to show that seasonal fluctuations in quantities are an order of magnitude larger than prices. Although observed prices fluctuate less than optimal prices in a simple benchmark model, retailers lose little profit from seasonally uniform prices, because demand never approaches becoming inelastic.