Do Sellers Exploit Biased Beliefs of Buyers? An Experiment

I study experimental markets in which sellers interact with buyers who have biased beliefs about the characteristics of the product that is being sold. I examine whether such buyers can be exploited by sellers through the use of specifically designed pricing structures, as suggested by recent models in behavioral IO. Comparing seller profits to the case where they interact with unbiased buyers, however, there is no evidence of exploitation. I argue that this is because buyers are sophisticated enough to realize and prevent exploitative pricing by the sellers. I also formalize the idea of buyer sophistication theoretically