Pricing through ambiguity: a flocking model of the inter-dynamics between pricing practices and market uncertainties

Abstract

ABSTRACT Pricing practices of firms are an important yet the least studied aspect of the price phenomenon in sociology. This paper answers the question: why do firms, even in the same market, tend to use different pricing practices – value-informed, competition-informed, or cost-informed pricing – to set prices? To that end, this study constructs a formal dynamic flocking model to investigate the inter-dynamics between market uncertainties and the viability of the three pricing practices. The model is a substantial revision and extension of Harrison White’s static W(y) market model by reformulating the latter into a dynamic one and by explicitly incorporating different market uncertainties into the model as variables. The study shows that each kind of pricing practice is only viable under certain distributions of market uncertainties. The theory is then used to explain the distribution of pricing practices among firms in the Burgundy wine market. Theoretical and methodological innovations and the implications for firms and for sociological research on markets and uncertainties are also discussed.