A Generalized Model of Advertised Sales

Authors: Chris M. Wilson and Sandro Shelegia

American Economic Journal: Microeconomics, Vol. 13, No 1, 195-223, December, 2021

To provide a more exible workhorse model of temporary price reductions or "sales", this paper presents a substantially generalized "clearinghouse" sales framework. Our framework permits multiple dimensions of firm heterogeneity, and views firms as competing directly in utility rather than prices. The paper i) reproduces and extends many equilibria from the existing literature, ii) offers a range of new results on how firm heterogeneity affects market outcomes, iii) provides original insights into the number and type of firms that use sales, and iv) extends a "cleaning" procedure that is commonly used in empirical studies of sales and price dispersion.

This paper originally appeared as Barcelona School of Economics Working Paper 934