Sublime

Not the demand level as such is relevant for optimal dynamic pricing ; it is the way customers respond to different prices at different times, in other words: the price elasticity . Unless you know it you are just fishing in muddy waters.

Although there is a lot of science around pricing, pricing is more art than science. For a great primer, I highly recommend getting a copy of Neil Davidson’s free ebook on software pricing, Don’t Just Roll the Dice.

In his seminal book Predictably Irrational, Dan Ariely describes an experiment that revealed just how much consumers’ decisions about the price they would like to pay are affected by the set of options they have to choose from. The idea for the experiment was born when Ariely noticed that The Economist magazine was using a rather perplexing pricing

you may indeed observe significant variation in prices and price difference s, but they yield very slight shifts in volume .

I have come to see Blumer as the iconic representation of the ideas in this book. He has been able to take precisely the forces that were upending his field and turn them to his advantage. In a more prosaic way, he was able to transform how price is determined. This is one of the most important elements of our new economy. We no longer have to thin

One restaurant that asked people to pay what they wanted for a meal found that people paid less than the restaurant would have charged normally. That might not sound good for the restaurant owner, but more people came to dine at the restaurant and almost no one paid nothing or very little. In total, the restaurant made more money.5 This relatively

Interestingly enough, people make some fascinating rationalizations for fractional prices. For example, Schindler (1984) found that consumers who see a price ending in 98 or 99 are more likely to believe that the price was not recently raised. (How anyone jumps to that conclusion I’ll never understand.) According to Quigley and Notarantonio (1992),