Multiproduct retailers and the sale phenomenon

Abstract

Two common features of retailing are that each retailer sells many different products, and that pricing strategies differ across products. This paper extends previous work on single-product retailer competition to a multiproduct setting. Specifically, we derive equilibrium pricing strategies for perishable and nonperishable goods. We find the intuition used to explain pricing dynamics for nonperishable items in single-product models generalizes to the multiproduct setting. Moreover, because goods are substitute means of attracting customers within the multiproduct setting, price changes for the nonperishable good will affect the perishable good price. In addition, the multiproduct setting generates a rich set of implications, some of which we empirically examine. For example, we find that, consistent with the theory, perishable and nonperishable price changes are negatively correlated. This and other evidence suggests that pricing dynamics are related in predictable ways to product characteristics, such as consumers' storage costs. [JEL Numbers: L81, L11, D21]. © 2001 John Wiley & Sons, Inc.