Prices and quantities: A macroeconomic analysis

Abstract

This experimental study investigates pricing and reactions to price discrimination and provides several novel insights. First, we identify the extent to which sellers intrinsically and strategically avoid price discrimination. Second, we find that sellers strategically overprice low value customers to avoid antagonizing high value customers. Third, we observe that customers are not generally antagonized by price discrimination: while they are less likely to buy if they are charged a higher price than another customer, they are more likely to buy if they are charged a lower price. Finally, we show that our findings hold regardless of whether sellers are monopolists or compete against other sellers. The observed behavioral patterns suggest a novel explanation for sticky prices and impulse purchase behavior.