DP6663 Price Variation Antagonism and Firm Pricing Policies

Author(s): Pascal Courty , Mario Pagliero

Publication Date: January 2007

Keyword(s): Consumer demand , Fairness , Responsive pricing

JEL(s): D01 , D12 , L86

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP6663.asp.asp

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.