Countercyclical pricing: A consumer heterogeneity explanation

•A consumer heterogeneity based explanation is proposed for countercyclical pricing.•We allow for heterogeneity in consumer valuations for a seasonal good.•Heterogeneity is both across consumers and for a single consumer across seasons.•We derive conditions under which optimal prices will be countercyclical.•We provide empirical support for the model from two seasonal product categories.

We show that a seasonal good could be priced countercyclically due to the heterogeneous seasonal shifts in consumer valuations. We provide empirical support for our explanation based on two product categories (canned soup and tuna) studied in the literature.