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Do Consumers Care about How Prices Are Set?

  • Pascal Courty
  • Mario Pagliero

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

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Date of creation: 2008
Date of revision:
Handle: RePEc:eui:euiwps:eco2008/03
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  1. William Vickrey, 1971. "Responsive Pricing of Public Utility Services," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 337-346, Spring.
  2. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Macroeconomics 0402020, EconWPA.
  3. Julio J. Rotemberg, 2011. "Fair Pricing," Journal of the European Economic Association, European Economic Association, vol. 9(5), pages 952-981, October.
  4. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  5. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  6. repec:tpr:qjecon:v:86:y:1972:i:3:p:494-98 is not listed on IDEAS
  7. 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.
  8. Severin Borenstein & Nancy L. Rose, 1991. "Competition and Price Dispersion in the U.S. Airline Industry," NBER Working Papers 3785, National Bureau of Economic Research, Inc.
  9. repec:tpr:qjecon:v:86:y:1972:i:3:p:499 is not listed on IDEAS
  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. Piron, Robert & Fernandez, Luis, 1995. "Are fairness constraints on profit-seeking important?," Journal of Economic Psychology, Elsevier, vol. 16(1), pages 73-96, March.
  12. 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.
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