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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.

Suggested Citation

  • Pascal Courty & Mario Pagliero, 2008. "Do Consumers Care about How Prices Are Set?," Economics Working Papers ECO2008/03, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2008/03
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    References listed on IDEAS

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    1. Julio J. Rotemberg, 2011. "Fair Pricing," Journal of the European Economic Association, European Economic Association, vol. 9(5), pages 952-981, October.
    2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    3. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-658, September.
    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. Piron, Robert & Fernandez, Luis, 1995. "Are fairness constraints on profit-seeking important?," Journal of Economic Psychology, Elsevier, vol. 16(1), pages 73-96, March.
    6. Frederick V. Waugh, 1972. "A Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 86(3), pages 499-499.
    7. Walter Y. Oi, 1972. "The Consumer Does Benefit from Feasible Price Stability: A Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 86(3), pages 494-498.
    8. R. L. Hall & C. J. Hitch, 1939. "Price Theory And Business Behaviour," Oxford Economic Papers, Oxford University Press, vol. 0(1), pages 12-45.
    9. 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 653-683, August.
    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. 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.
    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 728-741, September.
    13. William Vickrey, 1971. "Responsive Pricing of Public Utility Services," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 337-346, Spring.
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    Cited by:

    1. Courty, Pascal & Pagliero, Mario, 2010. "Price variation antagonism and firm pricing policies," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 235-249, August.

    More about this item

    Keywords

    Consumer demand; rationing; demand fluctuation; antagonism; fairness;

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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