Economics, Econometrics and Finance
4 years ago

Monopolies can perfectly discriminate prices with buyers' perfect foresight.

Recherches économiques de Louvain
Order Effects, Perfect Foresight and Intertemporal Price Discrimination
Norman J. Ireland, Paul Stoneman

Paper Summary

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The article explores how a seller can adjust prices over time to maximize profits when buyers can predict future price changes. By gradually lowering prices, the seller can sell to more customers and eliminate any extra value for buyers. This strategy works best when buyers expect prices to stay the same and are willing to pay different amounts for the product as more sales occur.