How to Haggle and to Stay Firm: Barter as Hidden Price Discriminatio n.

Barter transactions, conducted openly by established corporations, play an increasingly significant role in the U.S. economy. The model developed here helps explain why firms use barter. It is shown that when two firms barter goods used as inputs, price discrimination occurs. This price discrimination is hidden from the firms' other customers because the real values of the transacted goods to the barterers are different from the accounting prices used in the transaction. Since observed price discrimination might have an adverse effect on the selling firm's future bargaining power, barter will have value as a means of hiding price discrimination. Copyright 1988 by Oxford University Press.