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Price variation antagonism and firm pricing policies

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Author Info

  • Courty, Pascal
  • Pagliero, Mario

Abstract

Pricing schemes that vary prices in response to demand shocks may antagonize consumers and reduce demand. At the same time, consumers may take advantage of the opportunities offered by price changes. Overall, the net impact of varying price on demand is ambiguous. We investigate the issue empirically, exploiting a unique dataset from a firm that has experimented with different pricing schemes. Each scheme is characterized by how much prices respond to demand variations. Holding average price and other variables constant, we find that demand is higher when prices vary more. The evidence suggests that the antagonism effect cannot be first order.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 75 (2010)
Issue (Month): 2 (August)
Pages: 235-249

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Handle: RePEc:eee:jeborg:v:75:y:2010:i:2:p:235-249

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Consumer demand Consumer antagonism Price variation Responsive pricing Fairness;

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References

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  1. Heidhues, Paul & Köszegi, Botond, 2005. "The Impact of Consumer Loss Aversion on Pricing," CEPR Discussion Papers 4849, C.E.P.R. Discussion Papers.
  2. Pascal Courty & Mario Pagliero, 2008. "Do Consumers Care about How Prices Are Set?," Economics Working Papers ECO2008/03, European University Institute.
  3. Alvin E. Roth, 2006. "Repugnance as a Constraint on Markets," NBER Working Papers 12702, National Bureau of Economic Research, Inc.
  4. Fudenberg, Drew, 2006. "Advancing Beyond "Advances in Behavioral Economics"," Scholarly Articles 3208222, Harvard University Department of Economics.
  5. Dennis W. Carlton, 1987. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  6. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Macroeconomics 0402020, EconWPA.
  7. Pascal Courty & Mario Pagliero, 2008. "Responsive pricing," Economic Theory, Springer, vol. 34(2), pages 235-259, February.
  8. Kelly L. Haws & William O. Bearden, 2006. "Dynamic Pricing and Consumer Fairness Perceptions," Journal of Consumer Research, University of Chicago Press, vol. 33(3), pages 304-311, October.
  9. Drew Fudenberg, 2006. "Advancing Beyond Advances in Behavioral Economics," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 694-711, September.
  10. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  11. Courty, Pascal & Pagliero, Mario, 2003. "Does Responsive Pricing Increase Efficiency? Evidence from Pricing Experiments in an Internet Café," CEPR Discussion Papers 4149, C.E.P.R. Discussion Papers.
  12. Frey, Bruno S. & Pommerehne, Werner W., 1993. "On the fairness of pricing -- An empirical survey among the general population," Journal of Economic Behavior & Organization, Elsevier, vol. 20(3), pages 295-307, April.
  13. Julio J. Rotemberg, 2004. "Fair Pricing," NBER Working Papers 10915, National Bureau of Economic Research, Inc.
  14. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
  15. William Vickrey, 1971. "Responsive Pricing of Public Utility Services," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 337-346, Spring.
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Citations

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Cited by:
  1. Pascal Courty & Mario Pagliero, 2011. "Does responsive pricing smooth demand shocks?," Applied Economics, Taylor and Francis Journals, vol. 43(30), pages 4707-4721.
  2. Ran Spiegler, 2012. "Monopoly pricing when consumers are antagonized by unexpected price increases: a “cover version” of the Heidhues–Kőszegi–Rabin model," Economic Theory, Springer, vol. 51(3), pages 695-711, November.

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