IDEAS home Printed from https://ideas.repec.org/a/the/publsh/326.html
   My bibliography  Save this article

Consumer optimism and price discrimination

Author

Listed:
  • Eliaz, Kfir

    () (Department of Economics, Brown University)

  • Spiegler, Ran

    () (Department of Economics, University College London)

Abstract

We study monopolistic design of a menu of non-linear tariffs when consumers have biased prior beliefs regarding their future preferences. In our model, consumers are "optimistic'' if their prior belief assigns too much weight to states of nature characterized by large gains from trade. A consumer's degree of optimism is his private information, and the monopolist employs the menu of non-linear tariffs to screen it. We characterize the optimal menu and show that the existence of non-common priors has significant qualitative implications for price discrimination and ex-post inefficiency. Finally, the characterization enables us to interpret aspects of real-life menus of non-linear tariffs.

Suggested Citation

  • Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, vol. 3(4), December.
  • Handle: RePEc:the:publsh:326
    as

    Download full text from publisher

    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20080459/2130/113
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Natalia Shestakova, 2010. "Pricing Scheme Choice: How Process Affects Outcome," CERGE-EI Working Papers wp411, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    2. Christensen, Else Gry Bro & Nafziger, Julia, 2016. "Packaging of sin goods - Commitment or exploitation?," Munich Reprints in Economics 43476, University of Munich, Department of Economics.
    3. Anja Sautmann, 2013. "Contracts for Agents with Biased Beliefs: Some Theory and an Experiment," American Economic Journal: Microeconomics, American Economic Association, vol. 5(3), pages 124-156, August.
    4. Grubb, Michael D., 2012. "Dynamic nonlinear pricing: Biased expectations, inattention, and bill shock," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 287-290.
    5. Michele Piccione & Ran Spiegler, 2012. "Price Competition Under Limited Comparability," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 97-135.
    6. Michael D. Grubb, 2015. "Overconfident Consumers in the Marketplace," Journal of Economic Perspectives, American Economic Association, vol. 29(4), pages 9-36, Fall.
    7. Michael Grubb, 2015. "Behavioral Consumers in Industrial Organization: An Overview," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 247-258, November.
    8. Michael D. Grubb, 2015. "Behavioral Consumers in Industrial Organization," Boston College Working Papers in Economics 879, Boston College Department of Economics.
    9. Christensen, Else Gry Bro & Nafziger, Julia, 2016. "Packaging of sin goods – Commitment or exploitation?," Journal of Economic Behavior & Organization, Elsevier, vol. 122(C), pages 62-74.
    10. Stephen G. Leider & Özge Sahin, 2012. "Contracts, Biases and Consumption of Access Services," CESifo Working Paper Series 3698, CESifo Group Munich.
    11. Kfir Eliaz & Ran Spiegler, 2011. "Consideration Sets and Competitive Marketing," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 235-262.
    12. Antonio Rosato, 2016. "Selling substitute goods to loss-averse consumers: limited availability, bargains, and rip-offs," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 709-733, August.
    13. Iossa, Elisabetta & Martimort, David, 2015. "Pessimistic information gathering," Games and Economic Behavior, Elsevier, vol. 91(C), pages 75-96.
    14. Mark Armstrong, 2016. "Nonlinear Pricing," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 583-614, October.
    15. Natalia Shestakova, 2010. "Overcoming Consumer Biases in the Choice of Pricing Schemes: A Lab Experiment," CERGE-EI Working Papers wp418, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    16. D׳Agostino, Elena & Seidmann, Daniel J., 2016. "Protecting buyers from fine print," European Economic Review, Elsevier, vol. 89(C), pages 42-54.
    17. Michael D. Grubb, 2009. "Selling to Overconfident Consumers," American Economic Review, American Economic Association, vol. 99(5), pages 1770-1807, December.
    18. Eliaz, Kfir & Spiegler, Ran, 2009. "Bargaining over bets," Games and Economic Behavior, Elsevier, vol. 66(1), pages 78-97, May.
    19. Inderst, Roman & Peitz, Martin, 2012. "Informing consumers about their own preferences," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 417-428.
    20. Daniel Gottlieb & Kent Smetters, 2012. "Narrow Framing and Life Insurance," NBER Working Papers 18601, National Bureau of Economic Research, Inc.
    21. Philipp Meyer-Brauns, 2014. "Optimal Auditing with Heterogeneous Audit Perceptions," Working Papers tax-mpg-rps-2014-06, Max Planck Institute for Tax Law and Public Finance.
    22. Andrzej Baniak & Peter Grajzl, 2014. "Controlling Product Risks when Consumers are Heterogeneously Overconfident: Producer Liability vs. Minimum Quality Standard Regulation," CESifo Working Paper Series 5003, CESifo Group Munich.

    More about this item

    Keywords

    contracts; speculative trade; screening; non-common priors; mechanism-design; optimism; three-part tariffs;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:the:publsh:326. 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: (Martin J. Osborne). General contact details of provider: http://econtheory.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.