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Does Responsive Pricing Increase Efficiency? Evidence from Pricing Experiments in an Internet Café

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  • Courty, Pascal
  • Pagliero, Mario

Abstract

Responsive pricing proposes to increase efficiency by introducing a direct linkage between market conditions and changes in prices. This link is established by giving selective discounts that vary in real time as a function of the level of unused capacity. Using data from a unique pricing experiment in Internet cafés, we address the question of whether consumers respond to instantaneous price changes, and whether responsive pricing increases welfare. Our results show that the most responsive scheme in our sample increases occupancy by 11% over peak-load pricing. Welfare increases by an amount that corresponds to 12% of total consumer expenditure.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4149.

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Date of creation: Dec 2003
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Handle: RePEc:cpr:ceprdp:4149

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Keywords: responsive pricing;

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References

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  1. MacKie-Mason, J.K. & Varian, H.L., 1993. "Some Economists of the Internet," Papers 93-16, Michigan - Center for Research on Economic & Social Theory.
  2. Aubin, Christophe & Fougère, Denis & Husson, Emmanuel & Ivaldi, Marc, 1994. "Real-Time Pricing of Electricity of Residential Customers: Econometric Analysis of an Experiment," IDEI Working Papers 46, Institut d'Économie Industrielle (IDEI), Toulouse.
  3. William Vickrey, 1971. "Responsive Pricing of Public Utility Services," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 337-346, Spring.
  4. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  5. Pascal Courty & Mario Pagliero, 2008. "Responsive pricing," Economic Theory, Springer, vol. 34(2), pages 235-259, February.
  6. Herriges, Joseph A, et al, 1993. "The Response of Industrial Customers to Electric Rates Based upon Dynamic Marginal Costs," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 446-54, August.
  7. Peter M. Schwarz & Thomas N. Taylor & Matthew Birmingham & Shana L. Dardan, 2002. "Industrial Response to Electricity Real-Time Prices: Short Run and Long Run," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 597-610, October.
  8. Robert H. Patrick & Frank A. Wolak, 2001. "Estimating the Customer-Level Demand for Electricity Under Real-Time Market Prices," NBER Working Papers 8213, National Bureau of Economic Research, Inc.
  9. Crew, Michael A & Fernando, Chitru S & Kleindorfer, Paul R, 1995. "The Theory of Peak-Load Pricing: A Survey," Journal of Regulatory Economics, Springer, vol. 8(3), pages 215-48, November.
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Cited by:
  1. Pascal Courty & Mario Pagliero, 2006. "Price Variation Antagonism and Firm Pricing Policies," Economics Working Papers ECO2006/27, European University Institute.

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