Screening and Segmenting: A Consumer Surplus Perspective

Dirk Bergemann (), Tibor Heumann () and Michael C. Wang ()
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Dirk Bergemann: Department of Economics, Yale University
Tibor Heumann: Instituto de Econom’a, Pontificia Universidad Cat—lica de Chile
Michael C. Wang: Department of Economics, Yale University

No 2498R1, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We analyze consumer surplus when a monopolist can adjust both prices and product qualities across segments, engaging in second- and third-degree price discrimination simultaneously. We characterize the consumer-optimal segmentation and show that it has a striking structure: consumers with the same value receive the same quality in every segment, though prices differ. Under mild conditions, any segmentation harms consumers if and only if demand is sufficiently more elastic than supply. Hence, potential benefits for consumers depend critically on demand and supply elasticities. These findings have implications for regulatory policy regarding price discrimination and market segmentation.

Date: 2026-06-24
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