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Truth-Telling in a Priority Pricing Mechanism

Author

Listed:
  • Thami, Prakriti

    (Department of Economics, Lund University)

Abstract

This paper studies the impact of truth-telling preferences on aggregate consumer welfare within a priority pricing (PP) mechanism. Traditional models assume individuals always misrepresent private information to maximize payoffs, yet recent evidence suggests there may be an innate preference for truth-telling. By incorporating these preferences into a theoretical framework, I show that PP enhances welfare over uniform pricing only when the probability of non-truthful individuals surpasses a critical threshold, suggesting that PP may benefit populations with low truth-telling tendencies but reduce welfare when this tendency is high. To empirically test this, I conducted an online experiment, finding that while PP incentivized truth-telling, its impact did not vary significantly across groups with differing truth-telling tendencies. Instead, participants’ beliefs about others' truthfulness emerged as key in shaping behavior. These findings underscore that PP’s welfare-enhancing potential depends not only on incentives created by the pricing structure but also on the population's truth-telling tendencies and beliefs, offering valuable insight for designing effective pricing mechanisms.

Suggested Citation

  • Thami, Prakriti, 2025. "Truth-Telling in a Priority Pricing Mechanism," Working Papers 2025:3, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2025_003
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    priority pricing; consumer welfare; truth-telling behavior; incentive-compatible pricing;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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