Economic Theory and Experimental Seminar - Keiichi Kawai (UNSW)

Room 605, Level 6, FBE Building, 111 Barry Street, Carlton

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Alexandru Nichifor

nichifor@unimelb.edu.au

T: +61 3 8344 7420

Title: Robust Pricing with Refunds

Abstract: We characterize a selling mechanism that is robust to the seller's uncertainty about the buyer's signal structure. We show that by offering a generous refund policy the seller can significantly reduce this type of uncertainty and regain market power. A simple mechanism that utilizes a generous refund policy and random discounts achieves the best guaranteed-profit among all possible mechanisms.