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  • 2022
  • Working Paper
  • HBS Working Paper Series

Dynamic Pricing and Demand Volatility: Evidence from Restaurant Food Delivery

By: Alexander J. MacKay, Dennis Svartbäck and Anders G. Ekholm
  • Format:Print
  • | Language:English
  • | Pages:33
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Abstract

Pricing technology that allows firms to rapidly adjust prices has two potential benefits. Prices can respond more rapidly to demand shocks, leading to higher revenues. On the other hand, time-varying prices can be used to smooth out demand across periods, reducing costs in markets with capacity constraints. Using data from the staggered adoption of a pricing algorithm, we measure the impacts of time-varying pricing in the context of restaurant food delivery. On average, the pricing algorithm reduced prices, though it led to substantial variation in prices within and across days. We find that the adoption of time-varying pricing reduced demand volatility, resulting in a relative increase in the share of transactions occurring during low-demand periods. We estimate that the volatility semi-elasticity, which we define to reflect the relationship between time-series variation in quantities and prices, is -1.96. Our results point to the potential efficiency gains of time-varying pricing when firms face capacity constraints.

Keywords

Pricing Algorithms; Dynamic Pricing; Demand Volatility; Delivery Services

Citation

MacKay, Alexander J., Dennis Svartbäck, and Anders G. Ekholm. "Dynamic Pricing and Demand Volatility: Evidence from Restaurant Food Delivery." Harvard Business School Working Paper, No. 23-007, July 2022.
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About The Author

Alexander J. MacKay

Strategy
→More Publications

More from the Authors

    • August 2022
    • American Economic Journal: Microeconomics

    Contract Duration and the Costs of Market Transactions

    By: Alexander J. MacKay
    • July 7, 2022
    • Brookings Series: The Economics and Regulation of Artificial Intelligence and Emerging Technologies

    Are Online Prices Higher Because of Pricing Algorithms?

    By: Zach Y. Brown and Alexander J. MacKay
    • 2021
    • Faculty Research

    Dynamic Pricing Algorithms, Consumer Harm, and Regulatory Response

    By: Alexander J. MacKay and Samuel Weinstein
More from the Authors
  • Contract Duration and the Costs of Market Transactions By: Alexander J. MacKay
  • Are Online Prices Higher Because of Pricing Algorithms? By: Zach Y. Brown and Alexander J. MacKay
  • Dynamic Pricing Algorithms, Consumer Harm, and Regulatory Response By: Alexander J. MacKay and Samuel Weinstein
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