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Price discrimination through communication

  • Sher, Itai

    ()

    (Department of Economics, University of Minnesota)

  • Vohra, Rakesh

    ()

    (Department of Economics and Department of Electrical and Systems Engineering, University of Pennsylvania.)

We study a seller's optimal mechanism for maximizing revenue when a buyer may present evidence relevant to her value. We show that a condition very close to transparency of buyer segments is necessary and sufficient for the optimal mechanism to be deterministic--hence akin to classic third degree price discrimination--independently of non-evidence characteristics. We also find another sufficient condition depending on both evidence and valuations, whose content is that evidence is hierarchical. When these conditions are violated, the optimal mechanism contains a mixture of second and third degree price discrimination, where the former is implemented via sale of lotteries. We interpret such randomization in terms of the probability of negotiation breakdown in a bargaining protocol whose sequential equilibrium implements the optimal mechanism.

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Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 10 (2015)
Issue (Month): 2 (May)
Pages:

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Handle: RePEc:the:publsh:1129
Contact details of provider: Web page: http://econtheory.org

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  1. Sher, Itai & Vohra, Rakesh, 2015. "Price discrimination through communication," Theoretical Economics, Econometric Society, vol. 10(2), May.
  2. Celik, Gorkem, 2004. "Mechanism Design with Weaker Incentive Compatibility Constraints," Microeconomics.ca working papers celik-04-09-13-05-50-40, Vancouver School of Economics, revised 06 Aug 2008.
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  8. Joel Watson & Jesse Bull, 2004. "Hard Evidence and Mechanism Design," Econometric Society 2004 North American Winter Meetings 433, Econometric Society.
  9. Barton L. Lipman & Elchanan Ben-Porath, 2010. "Implementation with Partial Provability," Boston University - Department of Economics - Working Papers Series WP2010-018, Boston University - Department of Economics.
  10. Vohra,Rakesh V., 2011. "Mechanism Design," Cambridge Books, Cambridge University Press, number 9780521179461.
  11. Kartik, Navin & Tercieux, Olivier, 2012. "Implementation with evidence," Theoretical Economics, Econometric Society, vol. 7(2), May.
  12. Forges, Francoise & Koessler, Frederic, 2005. "Communication equilibria with partially verifiable types," Journal of Mathematical Economics, Elsevier, vol. 41(7), pages 793-811, November.
  13. Rubinstein, Ariel & Glazer, Jacob, 2006. "A study in the pragmatics of persuasion: a game theoretical approach," Theoretical Economics, Econometric Society, vol. 1(4), pages 395-410, December.
  14. Pai, Mallesh M. & Vohra, Rakesh, 2014. "Optimal auctions with financially constrained buyers," Journal of Economic Theory, Elsevier, vol. 150(C), pages 383-425.
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  17. Kos, Nenad, 2012. "Communication and efficiency in auctions," Games and Economic Behavior, Elsevier, vol. 75(1), pages 233-249.
  18. Vohra,Rakesh V., 2011. "Mechanism Design," Cambridge Books, Cambridge University Press, number 9781107004368.
  19. Elchanan Ben-Porath & Barton L. Lipman, 2009. "Implementation and Partial Provability," Boston University - Department of Economics - Working Papers Series wp2009-002, Boston University - Department of Economics.
  20. Sergei Severinov & Raymond Deneckere, 2006. "Screening when some agents are nonstrategic: does a monopoly need to exclude?," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 816-840, December.
  21. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
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  24. repec:dau:papers:123456789/168 is not listed on IDEAS
  25. Sher, Itai, 2014. "Persuasion and dynamic communication," Theoretical Economics, Econometric Society, vol. 9(1), January.
  26. Sher, Itai, 2011. "Credibility and determinism in a game of persuasion," Games and Economic Behavior, Elsevier, vol. 71(2), pages 409-419, March.
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