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Price Experimentation with Strategic Buyers

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  • Loginova, Oksana
  • Taylor, Curtis

Abstract

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.

Suggested Citation

  • Loginova, Oksana & Taylor, Curtis, 2003. "Price Experimentation with Strategic Buyers," Working Papers 03-02, Duke University, Department of Economics.
  • Handle: RePEc:duk:dukeec:03-02
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    References listed on IDEAS

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    Cited by:

    1. Henry W. Chappell & Paulo Guimarães & Orgül Demet Öztürk, 2011. "Confessions of an internet monopolist: demand estimation for a versioned information good," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 32(1), pages 1-15, January.
    2. Raphael Boleslavsky & Maher Said, 2013. "Progressive Screening: Long-Term Contracting with a Privately Known Stochastic Process," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 1-34.

    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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