PRICE DISCRIMINATION BY NEGOTIATION: A FIELD EXPERIMENT IN RETAIL ELECTRICITY

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 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 in negotiations based on retailer perceptions of consumers' search and switching costs. We also document differences in price distributions between entrants and incumbents, reflecting differences in captivity of their respective consumer bases. Finally, we show that higher prices paid by lower-income subsidy recipients in our market is not due to discriminatory targeting; they can be explained by variation in consumer willingness and ability to search and bargain.