Experimental Economics Seminar - David Byrne (University of Melbourne, Department of Economics)

Title: Price Discrimination, Search, and Negotiation in an Oligopoly: 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 the determinants of negotiated prices. By manipulating how information is revealed within a sequential bargaining game, we identify price discrimination based on ex-ante perceived search costs at the start of negotiations that can be overcome if consumers ex-post reveal they are informed about prices. Combining posted and negotiated prices, we document important asymmetries between incumbents’ and entrants’ pricing structures that segment consumers based on willingness to search and bargain. Finally, incomplete subsidy pass-through for low-income consumers in our market is not due to discriminatory targeting; it can be explained by variation in consumers' willingness and ability to search and bargain.