Consumer economics and pricing strategies


The course presents a number of economic forces that shape the interactions between sellers and final consumers in retail markets. We discuss whether and how sellers can convey credible messages (e.g., about the quality of their products) to potential buyers through advertising. We analyze price and product assortment strategies of retailers, and discuss retail regulations. We study dynamic price discrimination in presence of heterogeneous consumers and/or uncertain demand. Finally, we examine whether firms with market power can exploit cognitive biases that consumers may have and whether market competition allows consumer education and eliminates exploitation.


Part 1: Advertising, reputation and limit price (6 hours)
Part 2: Economics of retailing (8 hours)
Part 3: Dynamic pricing (6 hours)
Part 4: Pricing with consumer bounded rationality (4 hours)


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– Chipty, Tasneem, and Snyder, Christopher, 1999, The Role of Buyer Size in Bilateral Bargaining: A Study of the Cable Television Industry, Review of Economics and Statistics 81(2): 326-340
– Gabaix, Xavier, and Laibson, David, 2006, Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets, The Quarterly Journal of Economics 121(2): 505-540
– Gallego, Guillermo, and van Ryzin, Garrett, Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons, Management Science 40(8): 999-1020
– Kreps, David M., and Wilson, Robert, 1982, Reputation and Imperfect Information, Journal of Economic Theory 27: 253-279
– Lazear, Edward P., 1986, Retail Pricing and Clearance Sales, The American Economic Review 76(1):14-32
– Milgrom, Paul, and Roberts, John, 1986, Price and Advertising Signals of Product Quality, The Journal of Political Economy 94(4): 796-821
– Rey, Patrick, and Chen, Zhijun, 2012, Loss Leading as an Exploitative Practice, The American Economic Review, 102(7): 3462-3482
– Spiegler, Ran, 2001, Bounded Rationality and Industrial Organization, Oxford University Press