“Last-chance” sales: what makes them credible?

Félix Muñoz García, Heriberto González Lozano

Abstract


This paper analyzes the firms’ standard practice of announcing clearance or “last-chance” sales, namely advertising that a particular product is not going to be available in the market anymore. In the context of a two-period signaling game, prices and advertising decisions of firms are analyzed. Then, the set of separating and pooling equilibria is characterized, so that the above usual advertising techniques can be better understood as equilibria of this model for certain parameter values. In particular, this paper shows that, when the firm which continues in the business knows that few of their current customers will come back in future periods, the set of separating equilibria shrinks. That is, fewer future prospects induce all types of firms to compete for current consumers, leading to pooling equilibria in which all firms announce a “last-chance” sale, even if some of them know they will remain in the industry next period.

Clasificación JEL: L12, D82.

 

 


Keywords


signaling; advertising; separating equilibria; information transmission.

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References


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    Copyright (c) 2009 Félix Muñoz García, Heriberto González Lozano

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    Ensayos Revista de Economía, Vol. 37, No. 1, Mayo 2018, es una publicación semestral editada por la Universidad Autónoma de Nuevo León, a través de la Facultad de Economía con la colaboración del Centro de Investigaciones Económicas, Av. Lázaro Cárdenas 4600 Ote., Fracc. Residencial Las Torres, Monterrey, N.L. C.P. 64930. Tel. +52 (81) 8329 4150 Ext. 2463 Fax. +52 (81) 8342 2897. Editor Responsable: Edgar M. Luna, Reserva de Derechos al Uso Exclusivo No. 04-2015-091013542400-203, ISSN 2448-8402, ambos otorgados por el Instituto Nacional del Derecho de Autor. Responsable de la última actualización de este Número: M.C. Hans Y. Martinez Torres, Facultad de Economía, UANL, Av. Lázaro Cárdenas 4600 Ote., Fracc. Residencial Las Torres, Monterrey, N.L. C.P. 64930. Tel. +52 (81) 8329 4150. Fecha última de actualización 25 de abril de 2018.

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