We introduce observable heterogeneity across buyers into a model of simultaneous search. Buyers’ differences are informative about their willingness to search, giving rise to price discrimination even if they all have the same willingness to pay. We analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not. We find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution. Interestingly, for normally distributed search costs, there is an inverted U-shape relationship between prices and buyers’ size. Similarly, a ban on price discrimination hurts small and large buyers, to the benefit of the medium-size ones.
- Bid solicitation
- Third-degree price discrimination
ASJC Scopus subject areas
- Economics and Econometrics