Wednesday, December 4, 2013
Dirk Bergemann, Benjamin Brooks, and Stephen Morris discuss The Limits of Price Discrimination.
ABSTRACT: We analyze the welfare consequences of a monopolist having additional information about con- sumerstastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination". We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non- negative, (ii) producer surplus is at least as high as profi ts under the uniform monopoly price, and (iii) total surplus does not exceed the efficient gains from trade. As well as characterizing the welfare impact of price discrimination, we examine the limits of how prices and quantities can change under price discrimination. We also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market.