Limit price

About: Limit price is a research topic. Over the lifetime, 4865 publications have been published within this topic receiving 148546 citations.

On the Optimal Pricing Policy of a Monopolist

Abstract: The paper presents a simple explanation of price dispersion by a monopolist assuming only that consumers arrive in a random order and are served on a first-come-first-served basis. A firm can sometimes increase its profits by charging two different prices for the same good and rationing sales at the lower price. However, it is never necessary to charge more than two prices, and a single price is sufficient as long as either the marginal revenue curve is everywhere downward sloping or the marginal cost of production is constant.

The Consequences of Price Instability on Search Markets: Toward Understanding the Effects of Inflation

Abstract: Real price variability depreciates the information about future prices contained in current ones. Repeat-purchase customers have, then, less incentive to acquire price information. The fact that consumers are less well informed allows firms to increase their markups and permits inefficient producers to increase their sales. Production gets reallocated toward higher-cost firms. Given the well-documented correlation between inflation and relative price variability, these results help explain some of the costs of inflation. Copyright 1994 by American Economic Association.

Pricing, Sunk Costs, and Market Structure Online: Evidence from Book Retailing

Abstract: While online consumers are less concerned than traditional consumers about firm location, they may be more concerned about unobservable quality and, to signal this, online retailers rely more on advertising than traditional retailers. Imperfect price competition may arise because of vertical product differentiation, incomplete consumer awareness, and near-perfect information exchange between retailers. This paper evaluates alternative theories of competition and market structure in online retailing. Advertising, product development, and revenue data for the online book market reveal that consumers respond to advertising and website spending rather than low prices. As the market size expanded, during 1997-2001, these endogenous sunk costs escalated and there was no major new entry. Advertising-to-sales ratios and market-concentration ratios are much higher than for traditional bookselling. Using price and demand information for individual books over a number of weeks, we find counter-cyclical and cross-sectional price variation inconsistent with perfect price competition.

Why Higher Price Sensitivity of Consumers May Increase Average Prices: An Analysis of the European Electricity Market

Abstract: We develop a model of the European electricity market that allows analyzing the impact of consumers' price sensitivity, defined as the willingness to change energy providers, on equilibrium prices. The model is parameterized with publicly available data on total demand, marginal costs and capacity constraints of power generators. Comparably precise data on the price sensitivity is not available, so that we analyze its impact in a range of simulations. Contrary to apparently straightforward expectations, we find that a higher price sensitivity increases average prices under reasonable assumptions. The reason is that, when price sensitivity is high, the most efficient energy providers can attract sufficiently many consumers for operating at full capacity, even when price differences to their less efficient competitors are small. Hence, incentives to reduce prices are higher when the price sensitivity is low. We conclude that the widespread view that high electricity prices can (partially) be attributed to a low willingness of consumers to change their providers is flawed.

Coordinating price reductions and coupon events

Abstract: In this article, the authors use an economic model to show that it may be optimal to lower the retail price during a coupon event when marginal consumers have moderate hassle costs of coupon redemption. Results from the model offer predictions on the relationships among coupon redemptions, shelf price, and coupon face value. The authors test these predictions on a large data set of hundreds of coupon events across six packaged goods categories. The data show that when a small coupon face value is offered, the shelf price is likely to be reduced. They also find that coupon efficiency increases when there is a lower retail price. The results are of interest to managers planning a promotion calendar and deciding whether to coordinate price promotions with coupon events, and they contribute to economic theory. When a firm moves from uniform pricing (e.g., no coupons) to second-degree price discrimination (e.g., coupons), all consumers may face a lower price. This finding has public policy implication...