Economics at your fingertips  

Why do consumers prefer static instead of dynamic pricing plans? An empirical study for a better understanding of the low preferences for time-variant pricing plans

Christian Schlereth, Bernd Skiera () and Fabian Schulz

European Journal of Operational Research, 2018, vol. 269, issue 3, 1165-1179

Abstract: Time-variant pricing plans in electricity markets aim to mitigate mismatches between demand and supply by incentivizing consumers to shift their demand from costly peak to cheaper off-peak times. Their implementation can be manifold; they could depend statically on the time of the day (i.e., time-of-use pricing) or adjust prices dynamically in nearly real time (real-time pricing). If consumers reduced demand in peak times, then they would realize lower prices and providers would operate at lower costs. Still, consumers frequently refuse time-variant pricing plans. The authors develop a new conceptual framework to study and explain this behavior. It supports the optimal choice of time-variant pricing plans by jointly considering price fairness and economic antecedents. In a discrete choice experiment, the authors use a hierarchical Bayes covariate extended logit estimation to measure respondents’ probability of switching from a time-invariant pricing plan to a time-variant pricing plan. The results show that economic antecedents, such as price consciousness and flexibility, have a stronger effect on the choice of a time-variant pricing plan than price fairness considerations; cost insurance is a promising instrument for increasing acceptance of dynamic pricing plans. The results also suggest new ways to target prospective customers.

Keywords: Pricing; Discrete choice experiments; Hierarchical Bayes extended covariate logit model; Price fairness; Electricity (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-10-12
Handle: RePEc:eee:ejores:v:269:y:2018:i:3:p:1165-1179