On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates

Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Minneapolis
Staff Report
Informational Rigidities and the Stickiness of Temporary Sales
Benjamin A. Malin
Eric Anderson
Emi Nakamura
Duncan Simester
Jon Steinsson
Abstract

We use unique price data to study how retailers react to underlying cost changes. Temporary sales account for 95% of price changes in our data. Simple models would, therefore, suggest that temporary sales play a central role in price responses to cost shocks. We find, however, that, in response to a wholesale cost increase, the entire increase in retail prices comes through regular price increases. Sales actually respond temporarily in the opposite direction from regular prices, as though to conceal the price hike. Additional evidence from responses to commodity cost and local unemployment shocks, as well as broader evidence from BLS data reinforces these findings. We present institutional evidence that sales are complex contingent contracts, determined substantially in advance. We show theoretically that these institutional practices leave little money “on the table”: in a price-discrimination model of sales, dynamically adjusting the size of sales yields only a tiny increase in profits.


Download Full text
Cite this item
Benjamin A. Malin & Eric Anderson & Emi Nakamura & Duncan Simester & Jon Steinsson, Informational Rigidities and the Stickiness of Temporary Sales, Federal Reserve Bank of Minneapolis, Staff Report 513, 25 Jun 2015.
More from this series
JEL Classification:
Subject headings:
Keywords: Regular retail prices; Retail sales; Trade deals
For corrections, contact Jannelle Ruswick ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal