Timing of Seasonal Sales

We present a model of timing of seasonal sales where stores choose several designs at the beginning of the season without knowing which one, if any, will be fashionable. Fashionable designs have a chance to fetch high prices in fashion markets while non-fashionable ones must be sold in a discount market. In the beginning of the season, stores charge high prices in the hope of capturing their fashion market. As the end of the season approaches with goods still on the shelves, stores adjust downward their expectations that they are carrying a fashionable design, and may have sales to capture the discount market. Having a greater number of designs induces a store to put one of them on sales earlier to test the market. Moreover, price competition in the discount market induces stores to start sales earlier because of a greater perceived rst-mover advantage in capturing the discount market. More competition, perhaps due to decreases in the cost of product innovation, makes sales occur even earlier. These results are consistent with the observation that the trend toward earlier sales since mid-1970's coincides with increasing product varieties in fashion good markets and increasing store competition. Acknowledgements: We are grateful for the comments made by Peter Pashigian, Steve Salant, the Editor and anonymous referee, and seminar participants at Universitat Pompeu Fabra and Hong Kong University of Science and Technology. Courty' work was supported by grant DGES PB96-0302 from the Spanish Ministry of Education and by grant 1997 SGR 00138 from the Generalitat de Catalunya, and Li's was supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (Project No. HKU7148/98H). Department of Economics and Business, Ramon Trias Fargas, 25-27, 08005 Barcelona, Spain ([email protected]). School of Economics and Finance, University of Hong Kong, Pokfulam Road, Hong Kong ([email protected]).