Behavior - Based Price Discrimination by a Patient Seller

14 Pages Posted: 27 Jul 2011

See all articles by Sushil Bikhchandani

Sushil Bikhchandani

University of California, Los Angeles - Anderson School of Management

Kevin F. McCardle

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: July 27, 2011

Abstract

We investigate a model in which one seller and one buyer trade in each of two periods. The buyer has demand for one unit of a non-durable object per period. The buyer's reservation value for the good is private information and is the same in both periods. The seller commits to prices in each of two periods. Prices in the second period may depend on the buyer's first-period behavior. Unlike the equal discount factor case studied in earlier papers, we show that when the seller is more patient than the buyer, second-period prices increase after a purchase. In particular, the optimal dynamic pricing scheme is not a repetition of the optimal static pricing scheme.

Keywords: price discrimination, repeated adverse selection, commitment

JEL Classification: D40, D42

Suggested Citation

Bikhchandani, Sushil and McCardle, Kevin F., Behavior - Based Price Discrimination by a Patient Seller (July 27, 2011). Available at SSRN: https://ssrn.com/abstract=1895968 or http://dx.doi.org/10.2139/ssrn.1895968

Sushil Bikhchandani (Contact Author)

University of California, Los Angeles - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095
United States
310-206-2686 (Phone)
310-825-1581 (Fax)

Kevin F. McCardle

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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