New research reveals surprising distortions in nonlinear pricing strategies.
The article explores how adding randomness to people's choices affects pricing strategies. By considering uncertain outside options, the study shows that traditional pricing methods may not always hold up. The researchers develop a new approach to tackle this issue and apply it to two scenarios: pricing by a monopolist and competition between duopolists. Surprisingly, in some cases, pricing at the bottom may not be distorted, and intense competition can lead to efficient outcomes without distortions. This research sheds light on how randomness in decision-making can impact pricing strategies in different market settings.