Pricing with Prescheduled Sales

Abstract

In this paper, I introduce a framework of price promotions by firms that preschedule their sale dates. I set up a dynamic model of demand accumulation in which high- and low-valuation consumers enter the market every period. The high-valuation consumers buy immediately and leave the market; the low-valuation consumers accumulate while waiting for the sale price. The firms schedule the dates of their promotions in advance. I find that often they use mixed strategies, choosing the future promotion period according to a probability distribution function. If the firms can cancel their prescheduled sales, typically they can wait longer until holding sales by shifting the probability distribution towards later periods. Scheduling promotions in advance increases the firms’ profits in comparison to the case when the promotion decision is made in the period when the promotion is offered. Data and the online appendix are available at https://doi.org/10.1287/mksc.2017.1052 .