Working Paper: CEPR ID: DP6663
Authors: Pascal Courty; Mario Pagliero
Abstract: 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.
Keywords: Consumer Demand; Fairness; Responsive Pricing
JEL Codes: D01; D12; L86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price variability (L11) | demand (R22) |
| demand increases during low off-peak hours (L97) | price variability (L11) |
| price variability (L11) | decrease in consumption during high peak hours (L97) |
| fear of antagonizing consumers (D18) | firms not varying prices in response to demand shocks (L11) |