A Generalized Model of Sales

• Authors: Sandro Shelegia.
• BSE Working Paper: 934 | October 16
• Keywords: sales; price dispersion; advertising; clearinghouse; heterogeneity
• JEL codes: L13; D43; M3
• sales; price dispersion; advertising; clearinghouse; heterogeneity

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.