{"title":"Welfare Analysis of Dynamic Pricing","authors":"Ningyuan Chen, G. Gallego","doi":"10.2139/ssrn.2708892","DOIUrl":"https://doi.org/10.2139/ssrn.2708892","url":null,"abstract":"Dynamic pricing is designed to increase profits by adjusting prices in respond to changes in the marginal value of capacity or changes in input costs. While thousands of papers have been written about dynamic pricing, this is to our knowledge the first paper to examine the impact of dynamic pricing on consumer surplus. Intuition suggests that dynamic pricing may be a zero-sum game, where additional profits are made by firms at the expense of reducing consumer surplus. Executives who subscribe to this hypothesis may be reluctant to implement dynamic pricing for fear of consumer backlash. In this paper, we show that dynamic pricing is often win-win, with both firms and consumers being better off relative to the alternative of offering an optimal static price. The intuition lies on the fact that for common demand functions, the surplus function is decreasing convex in price and so is the composite function that incorporates optimal prices as a function of cost.","PeriodicalId":416968,"journal":{"name":"Fisher: Management Sciences (Topic)","volume":"26 1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124639957","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}