Price lower and then higher or price higher and then lower?

The paper presents an experiment testing the hypothesis that, if consumers’ valuation of a product is shaped by past experiences of prices, it may be more profitable for firms to follow the opposite strategy of pricing higher and then lower. We ran an individual choice experiment with a posted offer market setup, where different dynamic pricing strategies were implemented. Anchoring to the past two prices under simple rules can describe the behavior of 3 out of 4 subjects. We find evidence of preference shaping and the profitability of a ‘high low’ pricing strategy under a wide range of assumptions.

► Different dynamic strategies are implemented in a posted offer market setup.
► A ‘high low’ price strategy is the most profitable.
► This can be best explained by preference shaping.
► Simple anchoring rules describe the behavior of three out of four subjects.