Clearance sales and new product introduction

Abstract

This paper investigates monopolist sales strategies, especially a clearance sales strategy in which the firm keeps unsold products in stock and sells them at a discounted price in the next period. I focus on the effect of new product introduction on consumer behavior by using a durable-goods monopolist model with demand uncertainty. The result shows that without the introduction of new versions of products, clearance sales never occur. On the contrary, when new versions of products are released, clearance sales strategy can be used, when the excess supply is not expected to be that large. It is shown that new product introduction and replacement behavior play an important role in clearance sales strategy.