Discounts for Qualified Buyers Only

41 Pages Posted: 17 Sep 2010  

David McAdams

Duke University - Fuqua School of Business

Date Written: May 10, 2010

Abstract

The standard monopoly pricing problem is re-considered when the buyer can disclose his type (e.g. age, income, experience) at some cost. In the optimal sales mechanism with costly disclosure, the seller posts a price list, including a "sticker price" available to any buyer and a schedule of discounts available to those who disclose certain types. Unambiguous welfare implications of such a pricing policy are available in the limiting case when the buyer's type is fully informative: (i) The buyer is better off and the monopolist worse off when disclosure is more costly. (ii) When discounts are sufficiently rare, social welfare is strictly less than if the seller could not offer discounts.

Suggested Citation

McAdams, David, Discounts for Qualified Buyers Only (May 10, 2010). Economic Research Initiatives at Duke Working Paper No. 60. Available at SSRN: https://ssrn.com/abstract=1677580 or http://dx.doi.org/10.2139/ssrn.1677580

David McAdams (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

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