Does Responsive Pricing Smooth Demand Shocks?

Pascal Courty and Mario Pagliero

No 6662, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: Capacity utilization; Consumer demand; Price variability; Responsive pricing (search for similar items in EconPapers)
JEL-codes: D01 D12 L11 L86 (search for similar items in EconPapers)
Date: 2008-01
New Economics Papers: this item is included in nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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