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Optimal second-degree price discrimination and arbitrage: On the role of asymetric information among buyers

Doh-Shin Jeon () and Domenico Menicucci

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: The traditional theory of monopolistic screening tackles individual self-selection but does not address the possibility that buyers could form a coalition to coordinate their purchases and to reallocate the goods. In this paper, we design the optimal sale mechanism which takes into account both individual and coalition incentive compatibility focusing on the role of asymmetric information among buyers. We show that when a coalition of buyers is formed under asymmetric information, the monopolist can do as well as when there is no coalition. Although in the optimal sale mechanism marginal rates of substitution are not equalized across buyers (hence there exists room for arbitrage), they fail to realize the gains from arbitrage because of the transaction costs in coalition formation generated by asymmetric information.

Keywords: Monopolistic screening; coalition incentive compatibility; asymetric information; transaction costs (search for similar items in EconPapers)
JEL-codes: D42 D82 (search for similar items in EconPapers)
Date: 2001-11, Revised 2005-01
New Economics Papers: this item is included in nep-mic
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Related works:
Journal Article: Optimal Second-Degree Price Discrimination and Arbitrage: On the Role of Asymmetric Information Among Buyers (2005)
Working Paper: Optimal Second-degree Price Discrimination and Arbitrage: On the Role of Asymmetric Information among Buyers (2003) Downloads
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