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

See all articles by Daniel John Zizzo

Daniel John Zizzo

University of Queensland - School of Economics

Stefania Sitzia

University of East Anglia

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2010

Abstract

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

Zizzo, Daniel John and Sitzia, Stefania, Price Low and then Price High or Price High and then Price Low? (March 1, 2010). ESRC Centre for Competition Policy Working Paper No. 10-8, Available at SSRN: https://ssrn.com/abstract=1640474 or http://dx.doi.org/10.2139/ssrn.1640474

Daniel John Zizzo (Contact Author)

University of Queensland - School of Economics ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Stefania Sitzia

University of East Anglia ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom

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