DP4149 Does Responsive Pricing Increase Efficiency? Evidence from Pricing Experiments in an Internet Café

Author(s): Pascal Courty , Mario Pagliero

Publication Date: December 2003

Keyword(s): responsive pricing

JEL(s): D60 , R48

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP4149.asp

Responsive pricing proposes to increase efficiency by introducing a direct linkage between market conditions and changes in prices. This link is established by giving selective discounts that vary in real time as a function of the level of unused capacity. Using data from a unique pricing experiment in Internet cafés, we address the question of whether consumers respond to instantaneous price changes, and whether responsive pricing increases welfare. Our results show that the most responsive scheme in our sample increases occupancy by 11% over peak-load pricing. Welfare increases by an amount that corresponds to 12% of total consumer expenditure.