Price Low and then Price High or Price High and then Price Low?
ESRC Centre for Competition Policy Working Paper No. 10-8
31 Pages Posted: 17 Jul 2010
Date Written: March 1, 2010
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.
Keywords: consumer market, dynamic price strategies, shaping effects, bounded rationality
JEL Classification: C91, D03, D12, D21, L11
Suggested Citation: Suggested Citation