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Do Consumers Care About How Prices Are Set?

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  • Courty, Pascal
  • Pagliero, Mario

Abstract

Using a survey approach, we ask consumers to reveal their preferences over pricing schemes that may differ in terms of the average price of consumption, the amount of price variation, and the probability of being rationed. We find that consumers dislike pricing schemes that vary prices more but that they are willing to trade off price variation and rationing. Surprisingly, they are not willing to trade off an increase in price variation for a decrease in expected prices. We discuss the implications of these findings for firm pricing policies.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6533.

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Date of creation: Oct 2007
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Handle: RePEc:cpr:ceprdp:6533

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Keywords: antagonism; Consumer demand; demand fluctuation; fairness; rationing;

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  1. Piron, Robert & Fernandez, Luis, 1995. "Are fairness constraints on profit-seeking important?," Journal of Economic Psychology, Elsevier, vol. 16(1), pages 73-96, March.
  2. 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.
  3. Oi, Walter Y, 1972. "The Consumer Does Benefit From Feasible Price Stability: A Comment," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 494-98, August.
  4. Julio J. Rotemberg, 2004. "Fair Pricing," NBER Working Papers 10915, National Bureau of Economic Research, Inc.
  5. Waugh, Frederick V, 1972. "The Consumer Does Benefit From Feasible Price Stability: A Comment," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 499, August.
  6. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  7. Dennis W. Carlton, 1987. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  8. 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.
  9. Dickson, Peter R. & Kalapurakal, Rosemary, 1994. "The use and perceived fairness of price-setting rules in the bulk electricity market," Journal of Economic Psychology, Elsevier, vol. 15(3), pages 427-448, September.
  10. 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.
  11. Severin Borenstein & Nancy L. Rose, 1995. "Competition and Price Dispersion in the U.S. Airline Industry," NBER Working Papers 3785, National Bureau of Economic Research, Inc.
  12. 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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Cited by:
  1. 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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