Countercyclical Pricing: A Consumer Heterogeneity Explanation

14 Pages Posted: 4 Jan 2019

See all articles by Umut Guler

Umut Guler

Koc University

Kanishka Misra

University of Michigan, Stephen M. Ross School of Business; University of Michigan at Ann Arbor

Naufel J. Vilcassim

London Business School

Date Written: Jan 13, 2014

Abstract

The well documented phenomenon of countercyclical prices goes against intuition as basic economic theory predicts a price increase when there is an outward shift in the demand curve. In this research, we provide a consumer heterogeneity based explanation for why the prices of seasonal products might be falling during their peak demand periods. We derive conditions under which the optimal pricing scheme could be countercyclical due to the heterogeneous seasonal shifts in consumer valuations. The firm exploits this heterogeneity and price discriminates so that only the higher valuation customers are served during the off-season. We consider two product categories (canned soup and tuna) studied in the literature and provide empirical support for this explanation.

Keywords: seasonality, countercyclical pricing, retail, consumer heterogeneity

JEL Classification: D10, E32, L80

Suggested Citation

Guler, Umut and Misra, Kanishka and Vilcassim, Naufel J., Countercyclical Pricing: A Consumer Heterogeneity Explanation (Jan 13, 2014). Economics Letters, Vol. 122, No. 2, 2014, Available at SSRN: https://ssrn.com/abstract=3304667

Umut Guler (Contact Author)

Koc University ( email )

Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey

Kanishka Misra

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

University of Michigan at Ann Arbor ( email )

500 S. State Street

Naufel J. Vilcassim

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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