A Theoretical and Empirical Evaluation of Price Deals for Consumer Nondurables

Abstract

Food retailers regularly offer products for less than normal market price in special sales or deals. This paper briefly examines several common explanations for this phenomenon and finds the analyses to be less than complete. It then presents an explanation for dealing of storable products based on the idea of transfering inventory carrying costs from the retailer to the consumer. An inventory control model is described in which both consumers and the retailer act so as to minimize their own costs. Results derived from this model are then presented. Data relevant to both the consumer and the retailer model are presented and analyzed. The conclusion is that the data are consistent with the predictions of the models. Finally, the strategic implications of the model for manufacturers and retailers are discussed.