Discounts for Qualified Buyers Only

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.