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Do Consumers Care about How Prices Are Set?

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  • Pascal Courty
  • Mario Pagliero

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 European University Institute in its series Economics Working Papers with number ECO2008/03.

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Date of creation: 2008
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Handle: RePEc:eui:euiwps:eco2008/03

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

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  1. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  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. 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.
  5. Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-83, August.
  6. Julio J. Rotemberg, 2004. "Fair Pricing," NBER Working Papers 10915, National Bureau of Economic Research, Inc.
  7. 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.
  8. Piron, Robert & Fernandez, Luis, 1995. "Are fairness constraints on profit-seeking important?," Journal of Economic Psychology, Elsevier, vol. 16(1), pages 73-96, March.
  9. 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.
  10. 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.
  11. William Vickrey, 1971. "Responsive Pricing of Public Utility Services," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 337-346, Spring.
  12. 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.
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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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