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Price Variation Antagonism and Firm Pricing Policies

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Author Info
Pascal Courty
Mario Pagliero

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Abstract

Pricing schemes that vary prices in response to demand shocks may antagonize consumers and reduce demand. At the same time, consumers may take advantage of the opportunities offered by price changes. Overall, the net impact of varying price on demand is ambiguous. We investigate the issue empirically, exploiting a unique dataset from a firm that has experimented with different pricing schemes. Each scheme is characterized by how much prices respond to demand variations. Holding average price and other variables constant, we find that demand is higher when prices vary more. The evidence suggests that the antagonism effect cannot be first order.

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Publisher Info
Paper provided by European University Institute in its series Economics Working Papers with number ECO2008/02.

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Date of creation: 2008
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Handle: RePEc:eui:euiwps:eco2008/02

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Related research
Keywords: Consumer demand; responsive pricing; fairness;

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Find related papers by JEL classification:
D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Heidhues, Paul & Köszegi, Botond, 2005. "The Impact of Consumer Loss Aversion on Pricing," CEPR Discussion Papers 4849, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
  3. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June. [Downloadable!] (restricted)
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  4. Julio J. Rotemberg, 2004. "Fair Pricing," NBER Working Papers 10915, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Pascal Courty & Mario Pagliero, 2008. "Responsive pricing," Economic Theory, Springer, vol. 34(2), pages 235-259, February. [Downloadable!] (restricted)
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  6. Kelly L. Haws & William O. Bearden, 2006. "Dynamic Pricing and Consumer Fairness Perceptions," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 33(3), pages 304-311, October. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. Alvin E. Roth, 2007. "Repugnance as a Constraint on Markets," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 37-58, Summer.
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  9. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-58, September. [Downloadable!] (restricted)
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  10. William Vickrey, 1971. "Responsive Pricing of Public Utility Services," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 337-346, Spring. [Downloadable!] (restricted)
  11. Drew Fudenberg, 2006. "Advancing Beyond Advances in Behavioral Economics," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 694-711, September.
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  1. Courty, Pascal & Pagliero, Mario, 2008. "Does Responsive Pricing Smooth Demand Shocks?," CEPR Discussion Papers 6662, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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