糖心TV

Florian Artinger, joint work with Gerd Gigerenzer

Pricing in an Uncertain Market

Do firms use a heuristic strategy when setting prices? Many markets are inherently uncertain environments arising from the interaction between evaluating consumer’s willingness to pay, strategic considerations, and market volatility. Simon (1955), in his foundational article on bounded rationality proposes that in such environments firms employ a simple heuristic in the form of an aspiration level strategy to set prices. The use of such a strategy would imply that markets are characterized by price stickiness and price dispersion. In this paper we empirically investigate Simon’s proposition by analysing the pricing strategies of used car dealers who operate in a competitive and highly transparent market. Pricing data from an online market shows that the majority of 748 car dealers follow the principles of aspiration-adaptation, rather than competitive, state-dependent pricing. Interviews with dealers in the high-competitive segment of the market eliminate alternative theoretical accounts of price stickiness. We show that a pricing strategy with an initially high aspiration level and an intermediate time interval leads to higher profit than alternative strategies used in the market.