Daniel F. Garrett (Toulouse)
Kalai Family Workshop in Applied Microeconomics
Oct 30 2018
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“A Theory of Random Price Discounts,” joint with Francesc Dilme at U of Bonn
Abstract: We study pricing by a seller facing risk-averse buyers who arrive to the market over time. The seller can commit to any stochastic process determining the price at each date. The optimal choice is a "regular" price, with occasional price discounting that occurs at random times. We thus argue that buyers' inability to foresee the timing of price discounts can be a consequence of optimal (random) pricing by sellers when buyers are risk averse. We then study how buyer information about past prices affects the timing of optimal discounts, and relate this to empirical work on the timing of discounts.