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Price discrimination through communication

Itai Sher () and Rakesh Vohra ()
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Rakesh Vohra: Department of Economics and Department of Electrical and Systems Engineering, University of Pennsylvania.

Theoretical Economics, 2015, vol. 10, issue 2

Abstract: We study a seller's optimal mechanism for maximizing revenue when a buyer may present evidence relevant to her value. We show that a condition very close to transparency of buyer segments is necessary and sufficient for the optimal mechanism to be deterministic--hence akin to classic third degree price discrimination--independently of non-evidence characteristics. We also find another sufficient condition depending on both evidence and valuations, whose content is that evidence is hierarchical. When these conditions are violated, the optimal mechanism contains a mixture of second and third degree price discrimination, where the former is implemented via sale of lotteries. We interpret such randomization in terms of the probability of negotiation breakdown in a bargaining protocol whose sequential equilibrium implements the optimal mechanism.

Keywords: Price discrimination; communication; bargaining; commitment; evidence; network flows (search for similar items in EconPapers)
JEL-codes: C78 D82 D83 (search for similar items in EconPapers)
Date: 2015-05-27
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