Price discrimination through communication

Itai Sher () and Rakesh Vohra ()
Additional contact information
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
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
http://econtheory.org/ojs/index.php/te/article/viewFile/20150597/13038/399 (application/pdf)

Related works:
Working Paper: Price Discrimination Through Communication (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:the:publsh:1129

Access Statistics for this article

Theoretical Economics is currently edited by Simon Board, Federico Echenique, Thomas Mariotti, Florian Scheuer, Ran Spiegler

More articles in Theoretical Economics from Econometric Society
Bibliographic data for series maintained by Martin J. Osborne ().