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The Informational Benefit of Being Discriminated

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  • Catherine Gendron-Saulnier
  • Marc Santugini

    ()
    (IEA, HEC Montréal)

Abstract

We consider a monopoly supplying a homogeneous good to two separate markets with different demands. In one of the markets, some buyers do not know the quality of the good, but learn about it from observing prices. Under noisy demand, third-degree price discrimination is shown to alter the informational content of the price-signals received by the uninformed buyers. Specifically, discriminatory pricing have informational benefits over uniform pricing, i.e., the posterior beliefs of the uninformed buyers have a smaller bias and a lower variance.

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File URL: http://www.hec.ca/iea/cahiers/2013/iea1302_santuginim.pdf
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Bibliographic Info

Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 13-02.

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Length: 22 pages
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:iea:carech:1302

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Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
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Related research

Keywords: Market segmentation; Monopoly; Quality of information; Signaling; Third-degree price discrimination;

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References

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  1. Jeitschko, Thomas D. & Normann, Hans-Theo, 2011. "Signaling in deterministic and stochastic settings," DICE Discussion Papers, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) 35, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Janssen, Maarten C.W. & Roy, Santanu, 2010. "Signaling quality through prices in an oligopoly," Games and Economic Behavior, Elsevier, Elsevier, vol. 68(1), pages 192-207, January.
  3. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Imperfect competition and quality signalling," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 39(1), pages 163-183.
  4. Wassim DAHER & Leonard J. MIRMAN & Marc Santugini, 2009. "Information in Cournot: Signaling with Incomplete Control," Cahiers de recherche, HEC Montréal, Institut d'économie appliquée 09-09, HEC Montréal, Institut d'économie appliquée, revised Nov 2011.
  5. Sanford Grossman, 1989. "The Informational Role of Prices," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262572141, December.
  6. Daughety, Andrew & Reinganum, Jennifer, 1992. "Product Safety: Liability, R & D and Signaling," Working Papers, University of Iowa, Department of Economics 94-17, University of Iowa, Department of Economics, revised 1994.
  7. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  8. Kyle Bagwell & Michael Riordan, 1988. "High and Declining Prices Signal Product Quality," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Mirman, Leonard J. & Salgueiro, Egas M. & Santugini, Marc, 2014. "Noisy signaling in monopoly," International Review of Economics & Finance, Elsevier, Elsevier, vol. 29(C), pages 504-511.
  10. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, Econometric Society, vol. 53(6), pages 1315-35, November.
  11. Wolinsky, Asher, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 50(4), pages 647-58, October.
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Cited by:
  1. Catherine Gendron-Saulnier & Marc Santugini, 2013. "When (Not) to Segment Markets," Cahiers de recherche, CIRPEE 1335, CIRPEE.

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