DP6533 Do Consumers Care About How Prices Are Set?

Author(s): Pascal Courty , Mario Pagliero

Publication Date: October 2007

Keyword(s): antagonism , Consumer demand , demand fluctuation , fairness , rationing

JEL(s): A12 , D01 , D12

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP6533.asp.asp

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.