School of Social and Political Science

Description

Title: Discretionary Pricing and Market Stratification: An Ethnographically-Informed Field Experiment

Abstract:

In markets where prices are not standardized or transparent, actors use discretion to set prices on the spot. Prices can vary significantly across similar transactions, based on providers' situated judgments about their customers. Yet what determines who gets what price across exchange situations? And what are the distributional effects of such discretionary pricing? I examine these questions in the context of an informal money transfer market, known as hawala, run by networks of Syrian brokers in Turkey. Drawing on qualitative and experimental data, I examine the relational basis of brokers’ discretionary pricing for two of the most frequent types of hawala customers: refugees remitting money to family and humanitarian NGOs funding aid operations. I find based on my ethnographic and interview data that hawala brokers hold divergent ideas about what constitutes fair pricing depending on the type of customer. Refugees receive customized prices based on brokers' judgments of their unique circumstances, whereas brokers tend to standardize their prices for NGO customers using a uniform price scale. These findings are further substantiated in an audit study of 119 brokers, which reveals that brokers follow these distinct pricing scripts (customized vs. standardized) even in instances of “impersonal exchange.” Moreover, the experiment shows that these discretionary pricing decisions generate substantial stratification: refugees, on average, receive prices that are twenty percent higher than prices for NGOs. Finally, I unpack the mechanism behind these price disparities by tracing them to a particular group of brokers within the sample: professional brokers, who operate out of offices rather than on-the-go. The study sheds light on the factors that shape discretionary pricing and its broader distributional effects, and documents these dynamics in an informal money transfer market that serves the world’s largest refugee community.

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