Dynamic pricing with fairness concerns and a capacity constraint

Matthew Selove ()
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Matthew Selove: Chapman University

Quantitative Marketing and Economics (QME), 2019, vol. 17, issue 4, No 2, 385-413

Abstract: Abstract Although some firms use dynamic pricing to respond to demand fluctuations, other firms claim that fairness concerns prevent them from raising prices during periods when demand exceeds capacity. This paper explores conditions in which fairness concerns can or cannot cause shortages. In our model, a firm announces a price policy that states its prices during high and low demand, and customers must travel to a venue to learn the current price. We show that the interaction of fairness concerns with travel costs can cause the firm to set stable prices, which leads to shortages during high demand. However, if the firm is able to inform customers about the current price before they incur any travel costs, then dynamic pricing with no shortages is optimal even with strong fairness concerns.

Keywords: Game theory; Dynamic pricing; Fairness; Rationing (search for similar items in EconPapers)
JEL-codes: D45 D83 L11 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:qmktec:v:17:y:2019:i:4:d:10.1007_s11129-019-09212-8

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DOI: 10.1007/s11129-019-09212-8

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