"Knowledge is (Bargaining) Power – How Consumer Information Affects Pricing Mechanisms"
Why do pricing mechanisms co-exist across different markets for the same good or shift over time? This paper explores a fundamental characteristic of the market – buyer composition and belief heterogeneity – to explain whether goods are sold via fixed price or bargaining. Using a bargaining game with second-order uncertainty (a seller does not know what a buyer knows) we show that when buyers have large gains from the transaction and are more heterogeneous in their knowledge of the seller, the seller receives a higher payoff from bargaining than from fixed price. The general solution for the payoff difference between pricing mechanisms depends on the potential gain from the transaction of the seller and the buyer, their patience parameters, and the probability distribution of types. These results explain why different pricing mechanisms co-exist for souvenir markets in developing countries and how the introduction of information technology, such as crowd-sourced review spaces, could affect market structures over time.
"Gotta' Have Money to Make Money? Bargaining Behavior and Financial Need of Microentrepreneurs" with Morgan Hardy and Gisella Kagy
Bargaining over purchase prices with microenterprise owners in Ghana, we show that poorer microentrepreneurs agree to significantly lower prices than wealthier firm owners. This relationship is robust to controlling for a plethora of observables, including owner fixed effects across two rounds of panel data. A computerized bargaining experiment on the same sample, with randomized initial endowment, corroborates our real-bargaining panel findings. A simple extension of classic bargaining theory to include endowments with risk averse preferences yields a similar prediction. Further exploration of this "need-bargaining'' relationship is a key frontier in understanding barriers to the profitability of microenterprises.
"Digital Addiction" with Hunt Allcott and Matthew Gentzkow
"Discrimination and Media Diversity: Historical Evidence from Radio Stations"