Author Question: The original Filene's Basement in Boston had a unique pricing system. Every article in the store was ... (Read 59 times)

kodithompson · **on:** Jun 29, 2018

The original Filene's Basement in Boston had a unique pricing system. Every article in the store was marked with a tag showing the price and the date the article was first put on sale.

Twelve days later, if it has not been sold, the price is reduced by 25 percent. Six selling days later, it is cut by 50 percent and after an additional six days, it is offered at 75 percent off the original price. After six more days it is given to charity if it has not been sold. a. Is the Filene plan similar to any of the auctions we studied in this chapter? b. Suppose you are interested in a coat you have seen in a store that uses the same pricing system as Filene's Basement. (The Basement closed its doors in 2011). The initial price is 200 . You are willing to pay as much as 150 . Could it be optimal to buy the coat when the price is reduced to 150? Could it be optimal to wait six days and try to buy the coat when the price is reduced to 100? Could it be optimal to wait 12 days and try to buy the coat the price is reduced to 50?

Question 2

Is the United States a net borrower or a net lender? Is it a debtor or a creditor nation?

What will be an ideal response?

brittanywood · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

a. Filene's Basement's pricing scheme is similar to a Dutch auction. The price in this case will start at 200 . Filene's will lower the price until either (i) someone buys the coat, or (ii) no one buys the coat when the price has fallen to 50 .
b. You definitely will not buy the coat at the initial price of 150 (which is your willingness to pay). If you did pay 150 your consumer surplus would be zero. A harder question is whether is you should rush to Filene's and buy the coat when the price is cut to 100 . If you do, you will earn a surplus of 150 - 100 = 50 . If you do not, you could wait six more days in the hope of buying the coat for 50 . But if you wait someone else may buy the coat for 100 . This is the same sort of tradeoff you face in a first-price sealed bid auction. You decision will depend on your guess as to how many people are interested in the coat and their valuations and your attitude about risk.
See Shopper's World: Boston's Favorite Bargain Store, New York Times, April 18, 1982 (http://www.nytimes.com/1982/04/18/travel/shopper-s-world-boston-s-favorite-bargain-store.html)

Answer to Question 2

The United States is a net borrower and is a debtor nation.