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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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6663.

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Date of creation: Jan 2007
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Handle: RePEc:cpr:ceprdp:6663
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  1. 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.
  2. Pascal Courty & Mario Pagliero, 2008. "Do Consumers Care about How Prices Are Set?," Economics Working Papers ECO2008/03, European University Institute.
  3. Courty, Pascal & Pagliero, Mario, 2003. "Responsive Pricing," CEPR Discussion Papers 4036, C.E.P.R. Discussion Papers.
  4. Alvin E. Roth, 2006. "Repugnance as a Constraint on Markets," Levine's Bibliography 321307000000000629, UCLA Department of Economics.
  5. Julio J. Rotemberg, 2004. "Fair Pricing," NBER Working Papers 10915, National Bureau of Economic Research, Inc.
  6. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2003. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Working Papers 2003-07, Bar-Ilan University, Department of Economics.
  7. 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.
  8. Drew Fudenberg, 2006. "Advancing Beyond Advances in Behavioral Economics," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 694-711, September.
  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. Heidhues, Paul & Köszegi, Botond, 2005. "The Impact of Consumer Loss Aversion on Pricing," CEPR Discussion Papers 4849, C.E.P.R. Discussion Papers.
  11. 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.
  12. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-58, September.
  13. 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.
  14. 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.
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