A Model of Promotion-Free Retail Pricing of Durable Products

An important decision facing retailers is the level of price promotions or "sales" to have in their retail prices. In this paper, we consider the use of promotion-free (PF) retail pricing by stores selling durable products, where PF pricing means that the retailer does not use or advertise price promotions. Interestingly, we find, contrary to the previous literature, that a store using a PF strategy does not advertise prices, and yet may charge below shoppers' reservation prices. Further, we show that a store can follow a PF pricing strategy in equilibrium, when competing with another store following a PF pricing or a promotional pricing strategy, and we characterize the conditions that support each type of equilibrium. The combination of PF pricing, the lack of advertisement of prices, and pricing below the reservation price may be similar to the pricing strategy followed by EDLP stores selling durable products. Our analysis yields insights on how a store may choose between a PF pricing strategy and a promotional pricing strategy in a competitive setting.