Price experimentation with strategic buyers
There are many situations in which buyers have a significant stake in what a firm learns about their demands. Specifically, any time that price discrimination is possible on an individual basis and repeat purchases are likely, buyers possess incentives for strategic manipulation of demand information. A simple two-period model in which a monopolist endeavors to learn about the demand parameter of a repeat buyer is presented here. It is shown that high first-period prices may lead to strategic rejections by high-valuation buyers who wish to conceal information (i.e., to pool), while low first-period prices may lead to strategic rejections by low-valuation buyers who wish to reveal information (i.e., to signal). The seller never experiments against patient buyers in any equilibrium. Indeed, the seller often charges first-period prices that reveal no information at all, and she may even set an equilibrium first-period price strictly below the buyer's lowest possible valuation.
(This abstract was borrowed from another version of this item.)
Volume (Year): 12 (2008)
Issue (Month): 3 (September)
|Contact details of provider:|| Web page: http://link.springer.de/link/service/journals/10058/index.htm|
|Order Information:||Web: http://link.springer.de/orders.htm|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
- Godfrey Keller & Sven Rady, 1997.
"Optimal Experimentation in a Changing Environment,"
STICERD - Theoretical Economics Paper Series
/1997/333, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
- Ilya Segal, 2003. "Optimal Pricing Mechanisms with Unknown Demand," American Economic Review, American Economic Association, vol. 93(3), pages 509-529, June.
- Kennan, John, 2001.
"Repeated Bargaining with Persistent Private Information,"
Review of Economic Studies,
Wiley Blackwell, vol. 68(4), pages 719-55, October.
- Aghion, P. & Bolton, P. & Harris, C. & Jullien, B., 1990.
"Optimal Learning By Experimentation,"
DELTA Working Papers
90-10, DELTA (Ecole normale supérieure).
- Jean-Jacques Laffont & Jean Tirole, 1985.
"The Dynamics of Incentive Contracts,"
397, Massachusetts Institute of Technology (MIT), Department of Economics.
- Taylor, Curtis R, 2003.
" Supplier Surfing: Competition and Consumer Behavior in Subscription Markets,"
RAND Journal of Economics,
The RAND Corporation, vol. 34(2), pages 223-46, Summer.
- Taylor, Curtis R., 2000. "Supplier Surfing: Competition and Consumer Behavior in Subscription Markets," Working Papers 00-12, Duke University, Department of Economics.
- Drew Fudenberg & Jean Tirole, 1999.
"Customer Poaching and Brand Switching,"
Harvard Institute of Economic Research Working Papers
1871, Harvard - Institute of Economic Research.
- Greg Shaffer & Z. John Zhang, 2000. "Pay to Switch or Pay to Stay: Preference-Based Price Discrimination in Markets with Switching Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 397-424, 06.
- Amparo Urbano Salvador & Larry Samuelson & Leonard J. Mirman, 1990.
Working Papers. Serie AD
1990-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Aghion, Philippe, et al, 1991. "Optimal Learning by Experimentation," Review of Economic Studies, Wiley Blackwell, vol. 58(4), pages 621-54, July.
- Alessandro Acquisti & Hal R. Varian, 2005.
"Conditioning Prices on Purchase History,"
INFORMS, vol. 24(3), pages 367-381, May.
- Hart, Oliver D & Tirole, Jean, 1988.
"Contract Renegotiation and Coasian Dynamics,"
Review of Economic Studies,
Wiley Blackwell, vol. 55(4), pages 509-40, October.
- J. Miguel Villas-Boas, 1999. "Dynamic Competition with Customer Recognition," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 604-631, Winter.
- Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
- Aldo Rustichini & Asher Wolinsky, 1992.
"Learning about Variable Demand in the Long Run,"
1015, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Marco Battaglini, 2005.
"Long-Term Contracting with Markovian Consumers,"
American Economic Review,
American Economic Association, vol. 95(3), pages 637-658, June.
When requesting a correction, please mention this item's handle: RePEc:spr:reecde:v:12:y:2008:i:3:p:165-187. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F Baum)
If references are entirely missing, you can add them using this form.