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.
Jeon, Doh-Shin and Menicucci, Domenico, Buyer Coalitions against Monopolistic Screening: On the Role of
Asymetric Information among Buyers (May 31, 2002). UPF Economics and Business Working Paper No. 624. Available at SSRN: http://ssrn.com/abstract=320900 or http://dx.doi.org/10.2139/ssrn.320900
Doh-Shin Jeon (Contact Author)
Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )