Price Experimentation with Strategic Buyers

Oksana Loginova and Curtis Taylor

No 03-02, Working Papers from Duke University, Department of Economics

Abstract: There are many situations in which buyers have a significant stake in what a firm learns about their demands. Specifically, any time that price discrimination is possible on an individual basis and repeat purchases are likely, buyers possess incentives for strategic manipulation of demand information. A simple two-period model in which a monopolist endeavors to learn about the demand parameter of a repeat buyer is presented here. It is shown that high first-period prices may lead to strategic rejections by high-valuation buyers who wish to conceal information (i.e., to pool), while low first-period prices may lead to strategic rejections by low-valuation buyers who wish to reveal information (i.e., to signal). The seller never experiments against patient buyers in any equilibrium. Indeed, the seller often charges first-period prices that reveal no information at all, and she may even set an equilibrium first-period price strictly below the buyer's lowest possible valuation.

JEL-codes: C73 D81 D82 (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-gth and nep-ind
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Working Paper: Price Experimentation with Strategic Buyers (2005)
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