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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
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