Monopolistic group design with peer effects

Simon Board ()

Theoretical Economics, 2009, vol. 4, issue 1, pages 89-125

Abstract: In a range of settings, private firms manage peer effects by sorting agents into different groups, be they schools, communities, or product categories. This paper considers such a firm, which controls group entry by setting a series of anonymous prices. We show that private provision systematically leads to two distortions relative to the efficient solution: first, agents are segregated too finely; second, too many agents are excluded from all groups. We demonstrate that these distortions are a consequence of anonymous pricing and do not depend upon the nature of the peer effects. This general approach also allows us to assess the way the `returns to scale' of peer technology and the cost of group formation affect the optimal group structure.

Keywords: Mechanism design; peer effects; public goods; network effects (search for similar items in EconPapers)
JEL-codes: D82 H40 L12 (search for similar items in EconPapers)
Date: 2009 Written

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Related works:
Working Paper: Monopolistic Group Design with Peer Effects (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:the:publsh:413

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