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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. 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).
  2. Alvin E. Roth, 2007. "Repugnance as a Constraint on Markets," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 37-58, Summer.
  3. 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.
  4. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  5. William Vickrey, 1971. "Responsive Pricing of Public Utility Services," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 337-346, Spring.
  6. Pascal Courty & Mario Pagliero, 2006. "Responsive Pricing," 2006 Meeting Papers 315, Society for Economic Dynamics.
  7. Julio J. Rotemberg, 2011. "Fair Pricing," Journal of the European Economic Association, European Economic Association, vol. 9(5), pages 952-981, October.
  8. 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.
  9. 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.
  10. 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.
  11. Fudenberg, Drew, 2006. "Advancing Beyond "Advances in Behavioral Economics"," Scholarly Articles 3208222, Harvard University Department of Economics.
  12. Courty, Pascal & Pagliero, Mario, 2007. "Do Consumers Care About How Prices Are Set?," CEPR Discussion Papers 6533, C.E.P.R. Discussion Papers.
  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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