Peak-Hour Pricing Under Negative Externality: Impact of Customer Flexibility and Competitive Asymmetry

Several industries that provide services to customers (e.g., public utility and transportation) charge higher prices during peak hours smooth demand. With technologies electronic shelf labels) enabling retailers change easily within each day, should supermarkets use peak-hour pricing? To examine this question formally, we introduce a stylized duopoly model in the presence of “negative externality,” where firms compete for congestion-averse customers. We characterize how endogenously segment themselves regarding when shop, then equilibrium outcomes whether implement pricing varying types customer flexibility competitive asymmetry. Our analysis shows that, if are not flexible their store choice, both would always pricing. However, choice is present, firms’ decisions depend on asymmetry as follows. If one firm has clear advantage (in terms value or price) over other firm, dominant will pricing, whereas not. Otherwise, they engage symmetric competition similar price), neither it differentiated (high versus low cost). Through our different extensions, find firm’s ability set its regular price dampen effect peak-period Also, obtain consistent results there heterogeneity valuation congestion aversion level. Supplemental Material: The online appendix available at https://doi.org/10.1287/serv.2022.0309 .