Competitive Price Discrimination, Imperfect Information, and Consumer Search

Carl-Christian Groh ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Price discrimination in real-world settings is likely based on imperfect information. I analyse a homogenous goods framework where firms receive binary and noisy signals about consumer valuations and consumers engage in sequential search. Firms have no information about consumers' search histories. In this framework, the existence of on-path search can be understood as an imperfect screening device that firms employ to the detriment of consumers. Firm profits and equilibrium prices are highest in the unique symmetric pure-strategy equilibrium with search on the equilibrium path, as compared to any other symmetric pure-strategy equilibrium. The equilibrium with on-path search can only be sustained when search costs are at an intermediate level. At low search costs, an equilibrium is played in which there is no on-path search, but consumers use the threat of searching to ensure low prices. High levels of signal precision are detrimental to consumers by facilitating existence of the equilibrium with on-path search.

Keywords: search; competitive price discrimination; imperfect customer recognition (search for similar items in EconPapers)
JEL-codes: D43 D83 L13 L15 (search for similar items in EconPapers)
Pages: 66
Date: 2021-03
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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