The Limits of Price Discrimination

Dirk Bergemann, Benjamin Brooks and Stephen Morris
Additional contact information
Stephen Morris: Dept. of Economics, Princeton University

No 1896R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We analyze the welfare consequences of a monopolist having additional information about consumers' tastes, 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 profits 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.

Keywords: First degree price discrimination; Second degree price discrimination; Third degree price discrimination; Private information; Privacy; Bayes correlated equilibrium (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2013-05, Revised 2013-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Related works:
Journal Article: The Limits of Price Discrimination (2015)
Working Paper: The Limits of Price Discrimination (2014)
Working Paper: The Limits of Price Discrimination (2014)
Working Paper: The Limits of Price Discrimination (2013)
Working Paper: The Limits of Price Discrimination (2013)
Working Paper: The Limits of Price Discrimination (2013)
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