Pricing through Uncertainty

Description

Pricing practices of firms are an important yet little studied aspect of the price phenomenon in sociology. This study asks the question: Why do different firms, even in the same market, tend to use different pricing practices--value-informed, competition-informed, or cost-informed pricing--to set prices? To answer this question, this study builds a dynamic flocking model of pricing to investigate the inter-dynamics among pricing practices and various market uncertainties. The model shows that each pricing practice is only viable under certain combinations of levels of different market uncertainties. Supporting evidence, theoretical innovations, and practical implications of the model are discussed. Contrary to common intuition, uncertainty, conceptualized as some cognitive tolerance interval, is akin to lubricant, making the otherwise rigid, brittle, and friction-fraught system more smooth, robust, and error-tolerant under certain circumstances. Therefore, uncertainties, and the inter-dynamics among them, should be treated as an endogenous and integral part of the social mechanism at issue, rather than some amorphous “other” external to it.

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