Screening and Segmenting: A Consumer Surplus Perspective

Dirk Bergemann, Tibor Heumann and Michael Wang
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Dirk Bergemann: Yale University
Tibor Heumann: Pontificia Universidad Catolica de Chile
Michael Wang: Yale University

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

Abstract: We study how market segmentation affects consumers 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 more elastic than a cost-determined threshold. Hence, potential benefits for consumers depend critically on cost and demand elasticities. These findings have implications for regulatory policy regarding price discrimination and market segmentation.

Pages: 53 pages
Date: 2026-03-01
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