Price Discrimination by Negotiation: A Field Experiment in Retail Electricity
49 Pages Posted: 6 Apr 2019 Last revised: 9 Dec 2021
Date Written: December 9, 2021
We use a field experiment to study price discrimination in a market with price posting and negotiation. Motivated by concerns that low-income customers do poorly in markets with privately negotiated prices, we built a call center staffed with actors armed with bargaining scripts to reveal negotiated prices and their determinants. Our actors implement sequential bargaining games under incomplete information in the field. By experimentally manipulating how information is revealed, we generate sequences of price offers that allow us to identify price discrimination within negotiations based on retailer perceptions of customer search and switching costs. We also document differences in price distributions between entrants and incumbents, reflecting differences in captivity of their respective customer bases. Finally, we show that higher prices paid by lower-income subsidy recipients in our market are not due to discriminatory targeting; they can be explained by variation in customer willingness and ability to search and bargain.
Keywords: Price discrimination, incomplete information bargaining, search, switching costs, natural field experiment, retail electricity markets
JEL Classification: D83, L12, Q41
Suggested Citation: Suggested Citation