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Price Variation Antagonism and Firm Pricing Policies

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  • Pascal Courty
  • Mario Pagliero

Abstract

Survey evidence suggests firms do not use pricing policies that vary prices in response to demand changes because they fear that such practices would antagonize consumers. We investigate this hypothesis using a dataset from a firm that has experimented with different pricing schemes. Each scheme is characterized by how much prices respond to demand variations. We find evidence that is consistent with the hypothesis that consumers take advantage of the opportunities offered by price changes and inconsistent with the hypothesis that consumers are antagonized by price changes caused by demand shocks.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2006/27.

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Date of creation: 2006
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Handle: RePEc:eui:euiwps:eco2006/27

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Keywords: Consumer demand; responsive pricing; fairness; price rigidit;

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References

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  1. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  2. Mark J. Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 514-533, May.
  3. Paul Heidhues & Botond Köszegi, 2004. "The Impact of Consumer Loss Aversion on Pricing," CIG Working Papers SP II 2004-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  4. Julio J. Rotemberg, 2004. "Fair Pricing," NBER Working Papers 10915, National Bureau of Economic Research, Inc.
  5. Kelly L. Haws & William O. Bearden, 2006. "Dynamic Pricing and Consumer Fairness Perceptions," Journal of Consumer Research, University of Chicago Press, vol. 33(3), pages 304-311, October.
  6. Drew Fudenberg, 2006. "Advancing Beyond Advances in Behavioral Economics," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 694-711, September.
  7. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  8. Fudenberg, Drew, 2006. "Advancing Beyond "Advances in Behavioral Economics"," Scholarly Articles 3208222, Harvard University Department of Economics.
  9. Alvin E. Roth, 2006. "Repugnance as a Constraint on Markets," NBER Working Papers 12702, National Bureau of Economic Research, Inc.
  10. Pascal Courty & Mario Pagliero, 2008. "Do Consumers Care about How Prices Are Set?," Economics Working Papers ECO2008/03, European University Institute.
  11. 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.
  12. Courty, Pascal & Pagliero, Mario, 2003. "Does Responsive Pricing Increase Efficiency? Evidence from Pricing Experiments in an Internet Café," CEPR Discussion Papers 4149, C.E.P.R. Discussion Papers.
  13. William Vickrey, 1971. "Responsive Pricing of Public Utility Services," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 337-346, Spring.
  14. Pascal Courty & Mario Pagliero, 2008. "Responsive pricing," Economic Theory, Springer, vol. 34(2), pages 235-259, February.
  15. 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.
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Cited by:
  1. Spiegler, Ran, 2010. "Monopoly Pricing when Consumers are Antagonized by Unexpected Price Increases: A "Cover Version" of the Heidhues-Koszegi-Rabin Model," MPRA Paper 21429, University Library of Munich, Germany.
  2. Pascal Courty & Mario Pagliero, 2008. "Does Responsive Pricing Smooth Demand Shocks?," Economics Working Papers ECO2008/01, European University Institute.

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