Reverse Price Discrimination with Bayesian Buyers1. (June 2014)

• Record Type: Journal Article
• Authors: Bang, Se Hoon; Kim, Jaesoo; Yoon, Young‐Ro
• Is Part Of: Journal of industrial economics. Volume 62:Number 2(2014:Jun.)
• Page Start: 286
• Page End: 308
• Publication Date: 2014-06
• Subjects: Industrial organization (Economic theory) -- Periodicals; 338
• DOI: 10.1111/joie.12044
• Languages: English
• ISSNs: 0022-1821

Abstract

<abstract abstract-type="main"> <title> <x xml:space="preserve">Abstract</x> </title> <p>This paper studies price discrimination under the situation in which buyers' prior valuations are initially observable by a seller but buyers receive further information about a product or service which remains private thereafter. The buyers interpret new information via Bayes' rule. We show that, in this environment, prices are not monotone in buyers' <italic>prior</italic> valuations. Interestingly, this results in the possibility that a seller intentionally offers a higher price to a low valuation buyer rather than a high valuation buyer (<italic>Reverse Price Discrimination</italic>). We derive this result in both monopoly and duopoly markets.</p> </abstract>