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Order Effects, Perfect Foresight and Intertemporal Price Discrimination(*)

Published online by Cambridge University Press:  17 August 2016

Norman J. Ireland  and
Paul L. Stoneman
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Extract

We will define a supplier of a single product to be «dynamically discriminating» if he offers the product for sale at a sequence of different prices. Obviously the extent of such discrimination that is possible will depend on buyers’ expectations of future price movements and on any dynamic properties of buyers’ demand functions. The objective of this paper is to examine the extent of price discrimination that can take place in a market characterised by buyers’ perfect foresight and where the value each buyer places on the product changes as the number of sales increase.

If potential buyers are ‘myopic’ and believe that the current price of a commodity is not going to change in the future, then they will purchase if the current price is no more than their current reservation price. Given a distribution of reservation prices, a monopolist supplier can perfectly discriminate in this market by, say, first offering the commodity at a very high price and selling to those customers with the highest reservation price, and then gradually reducing the price, collecting more custom, and allowing no consumers’ surplus to exist.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 51 , Issue 1 , March 1985 , pp. 7 - 20
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1985 

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Footnotes

(*)

The authors are grateful to Kevin Roberts, Jesus Seade and participants of the Economic Theory Workshop at the University of Warwick and an anonymous referee of this Journal for comments on earlier versions of this paper. The authors are Readers in Economics at University of Warwick, Coventry.

References

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