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Price lower and then higher or price higher and then lower?

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  • Sitzia, Stefania
  • Zizzo, Daniel John

Abstract

The paper presents an experiment testing the hypothesis that, if consumers’ valuation of a product is shaped by past experiences of prices, it may be more profitable for firms to follow the opposite strategy of pricing higher and then lower. We ran an individual choice experiment with a posted offer market setup, where different dynamic pricing strategies were implemented. Anchoring to the past two prices under simple rules can describe the behavior of 3 out of 4 subjects. We find evidence of preference shaping and the profitability of a ‘high low’ pricing strategy under a wide range of assumptions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 33 (2012)
Issue (Month): 6 ()
Pages: 1084-1099

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Handle: RePEc:eee:joepsy:v:33:y:2012:i:6:p:1084-1099

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

Related research

Keywords: Consumer market; Dynamic price strategies; Shaping effects; Anchoring; Within-context rules; 2340; 2343; 2360; 3920; 3940;

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References

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  11. Trichy V. Krishnan & Frank M. Bass & Dipak C. Jain, 1999. "Optimal Pricing Strategy for New Products," Management Science, INFORMS, vol. 45(12), pages 1650-1663, December.
  12. Kyle Bagwell, 1987. "Introductory Price as a Signal of Cost in a Model of Repeat Business," Discussion Papers 722, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  15. Stefania Sitzia & Daniel Zizzo, 2011. "Does product complexity matter for competition in experimental retail markets?," Theory and Decision, Springer, vol. 70(1), pages 65-82, January.
  16. Schlee, Edward E., 2001. "Buyer experimentation and introductory pricing," Journal of Economic Behavior & Organization, Elsevier, vol. 44(3), pages 347-362, March.
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