Does Responsive Pricing Smooth Demand Shocks?
AbstractUsing 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 percent increase in price variability leads to a decrease in the variability of capacity utilization rates between 2 and 6 percent. We discuss implications for the use of demand-side incentives to deal with congestible resources.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6662.
Date of creation: Jan 2008
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Other versions of this item:
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-12 (All new papers)
- NEP-MIC-2008-04-12 (Microeconomics)
- NEP-MKT-2008-04-12 (Marketing)
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