Discounts For Qualified Buyers Only

Posted by D. Daniel Sokol

David McAdams, Duke University - Fuqua School of Business discusses 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 o and the monopolist worse o when disclosure is more costly. (ii) When discounts are suciently rare, social welfare is strictly less than if the seller could not oer discounts.