Price Low and then Price High or Price High and then Price Low?
Daniel John Zizzo
University of East Anglia - School of Economics and CBESS
University of East Anglia
March 1, 2010
ESRC Centre for Competition Policy Working Paper No. 10-8
The paper presents an experiment testing the hypothesis that, if consumers do not have well defined preferences and as a result their valuation of a new product is shaped by past experiences of prices, it may be more profitable for firms to follow a strategy of pricing high and then lower. We ran an individual choice experiment with a posted offer market setup, where different dynamic pricing strategies were implemented. We find evidence of preference shaping and the profitability of a ‘high low’ pricing strategy under a wide range of assumptions.
Number of Pages in PDF File: 31
Keywords: consumer market, dynamic price strategies, shaping effects, bounded rationality
JEL Classification: C91, D03, D12, D21, L11working papers series
Date posted: July 17, 2010
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