PRICE DISCRIMINATION AND PRIVACY: A NOTE

Sumit Joshi, Yu-An Sun and Poorvi L. Vora ()
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Sumit Joshi: Department of Economics, The George Washington University, USA
Yu-An Sun: Xerox Corporation (This work was performed while the author was with Department of Computer Science, The George Washington University), USA
Poorvi L. Vora: Department of Computer Science, Academic Center, 801 22nd Street NW, Washington D.C. 20052, USA

International Game Theory Review (IGTR), 2011, vol. 13, issue 01, 83-92

Abstract: In many instances of price discrimination, a seller of an item is in possession of signals from competing buyers regarding their private valuation for the item. If the seller uses this information to price discriminate against the buyer, buyers would correspondingly modify their signalling strategy. Our paper shows that the seller can gain by sometimes strategically ignoring the information contained in the signals and pricing the item in a non-discriminatory way. This "mixed" strategy induces buyers to send more informative signals in equilibrium than if the seller were to always price discriminate. Thus the seller can offset any revenue loss in states where he ignores information by the gains made in states where he can price discriminate more effectively due to the larger amount of information now communicated in the signals.

Keywords: Price discrimination; noisy signaling; partition strategies; Bayesian-Nash equilibrium; JEL Classification: D42; JEL Classification: D82; JEL Classification: L12 (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1142/S0219198911002861

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