Price Discrimination by Negotiation: A Field Experiment in Retail Electricity

49 Pages Posted: 6 Apr 2019 Last revised: 9 Dec 2021

See all articles by David P. Byrne

David P. Byrne

University of Melbourne

Leslie A. Martin

University of Melbourne - Department of Economics

Jia Sheen Nah

University of Melbourne

Date Written: December 9, 2021

Abstract

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

Byrne, David P. and Martin, Leslie A. and Nah, Jia Sheen, Price Discrimination by Negotiation: A Field Experiment in Retail Electricity (December 9, 2021). Available at SSRN: https://ssrn.com/abstract=3352209 or http://dx.doi.org/10.2139/ssrn.3352209

David P. Byrne (Contact Author)

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 )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
327
Abstract Views
1,735
rank
120,485
PlumX Metrics