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The Limits of Price Discrimination

53 Pages Posted: 16 May 2013  

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Benjamin A. Brooks

Princeton University - Department of Economics

Stephen Morris

Princeton University - Department of Economics

Multiple version iconThere are 5 versions of this paper

Date Written: May 15, 2013

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

JEL Classification: C72, D82, D83

Suggested Citation

Bergemann, Dirk and Brooks, Benjamin A. and Morris, Stephen, The Limits of Price Discrimination (May 15, 2013). Cowles Foundation Discussion Paper No. 1896. Available at SSRN: https://ssrn.com/abstract=2265367 or http://dx.doi.org/10.2139/ssrn.2265367

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Benjamin A. Brooks

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Stephen Edward Morris

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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