Does Responsive Pricing Smooth Demand Shocks?

Pascal Courty () and Mario Pagliero

No ECO2008/01, Economics Working Papers from European University Institute

Abstract: Using data from a unique pricing experiment, we investigate Vickrey’s conjecture that responsive pricing can be used to smooth both predictable and unpredictable demand shocks. Our evidence shows that increasing the responsiveness of price to demand conditions reduces the magnitude of deviations in capacity utilization rates from a pre-determined target level. A 10 percent increase in price variability leads to a decrease in the variability of capacity utilization rates between 2 and 6 percent. We discuss implications for the use of demand-side incentives to deal with congestible resources.

Keywords: Consumer demand; responsive pricing; capacity utilization; price variability (search for similar items in EconPapers)
JEL-codes: D01 D12 L11 L86 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic and nep-mkt
Date: 2008
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Working Paper: Does Responsive Pricing Smooth Demand Shocks? (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:eui:euiwps:eco2008/01

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