Truth-Telling in a Priority Pricing Mechanism

Prakriti Thami ()
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Prakriti Thami: Department of Economics, Lund University, Postal: School of Economics and Management, Box 7080, S-220 07 Lund, Sweden

No 2025:3, Working Papers from Lund University, Department of Economics

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.

Keywords: priority pricing; consumer welfare; truth-telling behavior; incentive-compatible pricing (search for similar items in EconPapers)
JEL-codes: D47 D61 D82 D90 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2025-03-25
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2025_003

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