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Noisy Learning and Price Discrimination: Implications for Information Dissemination and Profits

Catherine Gendron-Saulnier () and Marc Santugini

Cahiers de recherche from CIRPEE

Abstract: We study third-degree price discrimination in the presence of uninformed buyers who extract noisy information from observing prices. In a noisy learning environment, price discrimination can be detrimental to the firm and beneficial to the consumers. On the one hand, discriminatory pricing reduces consumers’ uncertainty, i.e., the variance of posterior beliefs upon observing prices is reduced. Specifically, observing two prices under discriminatory pricing provides more information than one price under uniform pricing even when discriminatory pricing reduces the amount of information contained in each price. On the other hand, it is not always optimal for the firm to use discriminatory pricing since the presence of uninformed buyers provides the firm with the incentive to engage in noisy price signaling. Indeed, if the benefit from price flexibility (through discriminatory pricing) is offset by the cost signaling quality through two distinct prices, then it is optimal to integrate markets and thus to use uniform pricing.

Keywords: Discriminatory pricing; market segmentation; monopoly; quality of information; learning; uniform pricing; third-degree price discrimination (search for similar items in EconPapers)
JEL-codes: D82 D83 L12 L15 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-com, nep-cta, nep-ind, nep-mic and nep-mkt
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