Abstract
Some sellers display high "regular" prices, but mark down these prices the vast majority of the time, advertising the good as "on sale" or "discounted". This note suggests a framework for understanding the practice, emphasizing the role of buyer uncertainty about their future valuations for the good. We argue that so-called "regular" prices set buyers' expectations regarding future prices, expectations that need not be tethered to the prices actually set. By manipulating upwards buyers' expectations of future prices, the seller can increase demand for the good at the current "sale" price, increasing profits
Keywords
fake sales, dynamic pricing, value uncertainty;
JEL codes
- D82: Asymmetric and Private Information • Mechanism Design
- L12: Monopoly • Monopolization Strategies
Reference
Daniel F. Garrett, “Fake Sales: A Dynamic Pricing Perspective”, Japanese Economic Review, vol. 77, n. 3, September 2019, pp. 375–382.
See also
Published in
Japanese Economic Review, vol. 77, n. 3, September 2019, pp. 375–382