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Price variation antagonism and firm pricing policies

  • Courty, Pascal
  • Pagliero, Mario

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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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 75 (2010)
Issue (Month): 2 (August)
Pages: 235-249

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Handle: RePEc:eee:jeborg:v:75:y:2010:i:2:p:235-249
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. 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.
  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. Alvin E. Roth, 2007. "Repugnance as a Constraint on Markets," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 37-58, Summer.
  4. Sam Peltzman, 1998. "Prices Rise Faster Than They Fall," University of Chicago - George G. Stigler Center for Study of Economy and State 142, Chicago - Center for Study of Economy and State.
  5. Courty, Pascal & Pagliero, Mario, 2003. "Responsive Pricing," CEPR Discussion Papers 4036, C.E.P.R. Discussion Papers.
  6. 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.
  7. 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).
  8. Pascal Courty & Mario Pagliero, 2008. "Do Consumers Care about how Prices are Set?," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 15(1), pages 27-43.
  9. William Vickrey, 1971. "Responsive Pricing of Public Utility Services," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 337-346, Spring.
  10. 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.
  11. Fudenberg, Drew, 2006. "Advancing Beyond "Advances in Behavioral Economics"," Scholarly Articles 3208222, Harvard University Department of Economics.
  12. Julio J. Rotemberg, 2004. "Fair Pricing," NBER Working Papers 10915, National Bureau of Economic Research, Inc.
  13. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-58, September.
  14. 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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