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Does responsive pricing smooth demand shocks?

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  • Pascal Courty
  • Mario Pagliero

Abstract

Using data from a unique pricing experiment, we investigate Vickrey's conjecture that responsive pricing can be used to smooth both predictable and unpredictable demand shocks. Our evidence shows that increasing the responsiveness of price to demand conditions reduces the magnitude of deviations in capacity utilization rates from a pre-determined target level. A 10% increase in price variability leads to a decrease in the variability of capacity utilization rates between 2% and 6%. We discuss implications for the use of demand-side incentives to deal with congestible resources.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 43 (2011)
Issue (Month): 30 ()
Pages: 4707-4721

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Handle: RePEc:taf:applec:v:43:y:2011:i:30:p:4707-4721

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Web page: http://www.tandfonline.com/RAEC20

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  1. Courty, Pascal & Pagliero, Mario, 2003. "Responsive Pricing," CEPR Discussion Papers 4036, C.E.P.R. Discussion Papers.
  2. Courty, Pascal & Pagliero, Mario, 2007. "Price Variation Antagonism and Firm Pricing Policies," CEPR Discussion Papers 6663, C.E.P.R. Discussion Papers.
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