Using Information to Amplify Competition

Using Information to Amplify Competition

By:	Wenhao Li (Department of Economics, The Pennsylvania State University)
Abstract:	I characterize the consumer-optimal market segmentation in competitive markets with differentiated products. I show that this segmentation is public---in that each firm observes the same market segments---and takes a simple form: in each market segment, there is a dominant firm favored by all consumers in that segment. By segmenting the market, all but the dominant firm maximally compete to poach the consumer's business, setting price to equal marginal cost. Information, thus, is being used to amplify competition. This segmentation simultaneously generates an efficient allocation and delivers to each firm its minimax profit.
URL:	http://d.repec.org/n?u=RePEc:arx:papers:2010.05342&r=com