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Lars Perner, Ph.D.
Assistant Professor of Clinical Marketing
Deparment of Marketing
Marshall School of Business
University of Southern California
Los Angeles, CA 90089-0443, USA
(213) 740-7127
Cell: (760) 412-0154 perner@marshall.usc.edu




Economic  theory suggests that as demand increases, sellers will be able to increase prices of scarce products.  With an increase in demand, the new demand curve would intersect the supply curve at a higher equilibrium price.  Why, then, do we actually see steep price discounts during the holiday shopping season when consumers are seeking to buy a large amount of goods?

Supply-Demand Curve

There are several reasons:

A November 14, 2007, article in the Wall Street Journal suggested that discounts might be less extreme this year than they have been in recent years.  Retail stores now have access to better price optimization software and are, in some cases, less dependent on the holiday season due to the growth of store brands.  There may well be some modest “cooling off” this year for these reasons, but it is unlikely that discounting will decline dramatically.  The retail environment is, if anything, getting more competitive.  Further, with Thanksgiving falling on November 22 in 2007—the earliest it can fall in any year—many retailers may, ironically, be overly optimistic in their sales expectations and may, therefore, stock too aggressively.  Although consumers have longer to shop, there is also a potential for much more merchandise to remain at critical points.  Even if retailers, on the average, order the right amount, those which have over-ordered may have to discount heavily and, in return, spur on the competition.  They “category killers” and discounters are here to stay, and their effects spill into the entire retail market.