Sale pricing is a very common pricing strategy at supermarkets.
We're all so used to seeing a store-wide sale with hundreds of items reduced in price that
we don't pause and ask ourselbes why on earth shops do this.
When you think hard about it, it becomes quiet a puzzling way of setting prices.
The effect of a sale is to lower the aberage prive a store changes.
But why knock 30% off many of your prices twice a year, when you could knock 5% off year-round?
Varying prices is a lot of hassle for stores
because they need to change their lebels and their advertising,
so why does it make sense for them to go to the trouble of mixing things up?
One explanation is that sales are an effective form of self-targeting.
If some customers shop around for a good deal and some costomers do not,
it's best for stores to have either high prices to pries cash from the loyal (or lazy) customers,
or low prices to win business from the bargain hunters.
Middle-of-the-road prices are no good: not high enough to exploit loyal customers,
not low enough to attract the bargain-hunters.
But that's not the end of the story, because if price were stable,then surely
even the most price-insensitive customers would learn where to get particular goods cheaply.
So rather than stick to either high or low prices, shops jump between the two extremes.
One common situation is for two supermarkets to be competing for the same customers.
As we've discussed, it's hard for one to be systematically more expensive than the other
without losing a lot of business,so they will charge similar prices on average,
but both will also mix up their prices. That way, both can distinguish the bargain hunters
from those in need of specific products, like people shopping to pick up ingredients for a cook-book
recipe they are making for a dinner party.
Bargain hunters will pick up whatever is on sale and make something of it.
The dinner-party shoppers come to the supermarket to buy specific products
and will be less sensitive to prices. The price-targeting strategy only works
because the supermarkets always vary the patterns of their special offers,
and because it is too much trouble to go to both stores. If shoppers could reliably predict
what was to be discounted, they could choose recipes ahead of time, and even
choose the approproate supermarket to pick up the ingredients wherever they're least expensive.
In fact, it is just as accurate, and more illuminating,
to turn the "sale" on its head and view prices as premiums on the salee price
rather than sale prices as discounts on the regular price.
The random pattern of sales is also a random pattern of price increases --
companies find it more profitable to increase prices （above the sale price)
by a larger amount on an unpredictable basis than by a small amount increases --
and may not even notice them for lower-value goods -- but easy to avoid predictable ones.