Price Discrimination, Search, and Negotiation in an Oligopoly: A Field Experiment in Retail Electricity

55 Pages Posted: 6 Apr 2019 Last revised: 19 Dec 2019

See all articles by David P. Byrne

David P. Byrne

The University of Melbourne

Leslie A. Martin

University of Melbourne - Department of Economics

Jia Sheen Nah

University of Melbourne

Date Written: December 19, 2019

Abstract

We use a field experiment to study price discrimination in a market with price posting and negotiation. Motivated by concerns that low-income consumers do poorly in markets with privately-negotiated prices, we built a call center staffed with actors armed with bargaining scripts to reveal the determinants of negotiated prices. By experimentally manipulating how information is revealed within a sequential bargaining game, we identify price discrimination based on ex-ante perceived search costs at the start of negotiations which can be overcome if consumers ex-post reveal they are informed about market prices. Combining posted and negotiated prices, we further document important asymmetries between incumbents’ and entrants’ pricing structures that segment consumers based on their willingness to search and bargain. Finally, we show that incomplete subsidy pass-through for low-income households observed in our market is not due to discriminatory targeting; it can be explained by variation in consumers' willingness and ability to search and bargain.

Keywords: price discrimination, search, negotiation, retail electricity

JEL Classification: D83, L12, Q41

Suggested Citation

Byrne, David P. and Martin, Leslie A. and Nah, Jia Sheen, Price Discrimination, Search, and Negotiation in an Oligopoly: A Field Experiment in Retail Electricity (December 19, 2019). Available at SSRN: https://ssrn.com/abstract=3352209 or http://dx.doi.org/10.2139/ssrn.3352209

David P. Byrne (Contact Author)

The University of Melbourne ( email )

Level 4
111 Barry Street
Melbourne, Victoria 3010
Australia

HOME PAGE: http://sites.google.com/view/dprbyrne/

Leslie A. Martin

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

HOME PAGE: http://lesliemartin.org

Jia Sheen Nah

University of Melbourne ( email )

No Address Available
United States

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