Job Market Paper

• Why Outlet Stores Exist: Reducing Cannibalization While Extending Markets  Abstract

  Many firms sell goods through outlet stores in addition to primary stores, particularly in the fashion industry. Outlet stores offer attractive pricing and are usually located far from central shopping districts. The main perspectives as to why outlet stores exist can be broadly classified into inventory management, geographic segmentation, and price discrimination through consumer self-selection. I evaluate these hypotheses in the context of a major fashion goods firm using newly available and highly granular data. Model-free evidence suggests that inventory management and geographic segmentation are not the main drivers for outlet store use. Consumers who shop at outlet stores also do not differ significantly from those who shop at primary stores in terms of income. I use a structural demand model to show that consumers are heterogeneous mainly in their sensitivity to travel distance and taste for product newness. I then develop a supply model to predict product development responses to changes in store locations. Through policy simulations, I find that the firm uses outlet stores to serve lower-value consumers, who self-select by traveling to outlet stores from central shopping districts. The firm stocks outlet stores with older merchandise to prevent cannibalization of primary store revenues by means of exploiting the positive correlation between consumers' travel sensitivity and taste for new products. I find that the rate of product introduction in primary stores would fall by 13% if outlet stores were closed down, while profits would decline by 19%. Close

Works in Progress

• Intertemporal Price Discrimination in Fashion Goods Retail Abstract

  Prices of many goods decline systematically over the product life cycle. This form of intertemporal price discrimination, or price-skimming, is present in a diverse set of industries that includes consumer electronics and fashion goods. Consumers with the highest willingness to pay buy products earlier than consumers with lower willingness to pay. Forward-looking consumers may delay purchase in anticipation of lower prices in the future. A fully optimal price schedule takes these dynamics into account. A feature of fashion goods that is not present in other applications is that product newness itself is desirable as a characteristic, separate from the value of having products earlier rather than later. This complicates the firm's pricing problem: it must balance the dual goals of pricing against the product's newness and price-skimming. It also raises the question of whether early adopters of fashion goods are characterized by their strong taste for newness or their higher baseline willingness to pay. The answer to this question will have strong implications on optimal price schedules and product design decisions. Close

• Retail Price as a Signal of Quality Abstract

  Clothing and accessories firms make heavy use of discount pricing, particularly in outlet stores. The result is that rather than facing a single price, consumers consider each product's retail or original price, the discount, and the effective price. A large portion of products have the feature of always being marked down so that the retail price is never the effective price. This offers a rare opportunity to separately measure the relevance of price as a signal of quality from the framing effects that large discounts may have on consumer decisions. It is crucial for firms to parse these effects since they have opposing implications on the appropriate pricing or signaling strategy. Close