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Experimenting with Behavior Based Pricing

Author

Listed:
  • Zuzana Brokesova

    (University of Economics in Bratislava)

  • Cary Deck

    (Sam M. Walton College of Business, University of Arkansas and Economic Science Institute, Chapman University)

  • Jana Peliova

    (University of Economics in Bratislava)

Abstract
Many purchases of differentiated goods are repeated, giving sellers the opportunity to engage in price discrimination based upon the shopper’s previous behavior by either offering loyalty discounts to repeat buyers or introductory rates to new customers. Recent theoretical work suggests that loyalty discounts are likely to be implemented when customer preferences are not stationary and sellers can pre-commit to prices for repeat buyers, but otherwise repeat buyers can be expected to pay the same or more than new buyers. This paper reports the results of a series of controlled laboratory experiments designed to empirically test the impact of these factors on pricing strategies, seller profit and total cost to consumers. Absent price pre-commitments, sellers in the lab engage in poaching when it is optimal to do so, but the ability to pre-commit leads to prices being relatively more favorable to loyal customers. Customer poaching increases seller profit and increases total consumer costs in the case of stable consumer preferences without price pre-commitment.

Suggested Citation

  • Zuzana Brokesova & Cary Deck & Jana Peliova, 2014. "Experimenting with Behavior Based Pricing," Working Papers 14-12, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:14-12
    as

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    File URL: http://www.chapman.edu/research-and-institutions/economic-science-institute/_files/WorkingPapers/brokesova-deck-peliova-experimenting-with-behavior-based-pricing.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Strategic Behavior; Time Discounting; Experiments.;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition

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