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Reverse Price Discrimination with B ayesian Buyers
Author(s) -
Bang Se Hoon,
Kim Jaesoo,
Yoon YoungRo
Publication year - 2014
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12044
Subject(s) - duopoly , price discrimination , valuation (finance) , monopoly , microeconomics , private information retrieval , business , economics , cournot competition , computer science , computer security , finance
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 B ayes' rule. We show that, in this environment, prices are not monotone in buyers' prior 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 ( Reverse Price Discrimination ). We derive this result in both monopoly and duopoly markets.