This paper develops a dynamic pricing model of a monopolistic retail store who sells
a storable good to ex ante homogeneous customers. We show that frequent price changes
between a few focal prices can be the profit maximizing price policy of the store. The key
mechanism is that customers’ willingness to pay depends on whether they buy the good
for immediate consumption or for their inventory. Our empirical findings support the
characteristics of this price policy: (1) stores tend to lower the price when the share of
customers without inventory is lower, and when the shopping intensity is higher; (2) the
demand exhibits negative dependence on price duration at lower sales prices, and positive
dependence at a higher regular price. This price policy is consistent with the behavior of
household inventories, accumulating during low price periods and decumulating during
high price periods – the driving factor of short-run fluctuations in demand