Department of Agricultural and Resource Economics

Sellers of almost any product or service rarely keep their prices constant through time, and frequently offer price discounts or sales. This paper investigates an explanation of sales as a way for uninformed consumers to be willing to experience the product, and learn about its fit, and where informed consumers may forget about (or change) their preferences. We investigate the role of the rate of forgetting on the timing between sales, and of the rate of learning and menu costs on the length of a sale. We also investigate the effect of a seller carrying multiple products on the pattern of sales. Using price series from supermarket categories, and given the assumed simplified preference structure, we obtain empirical estimates of the rates of learning and forgetting, and of the other model parameters.