The Limits of Price Discrimination

48 Pages Posted: 16 May 2013 Last revised: 21 Oct 2014

See all articles by Dirk Bergemann

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: September 24, 2014

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 pro…fits under the uniform monopoly price, and (iii) total surplus does not exceed the surplus generated by efficient trade.

Keywords: First Degree Price Discrimination, Second Degree Price Discrimination, Third Degree Price Discrimination, Private Information, Privacy, Bayes Correlated Equilibrium, Concavification

JEL Classification: C72, D82, D83

Suggested Citation

Bergemann, Dirk and Brooks, Benjamin A. and Morris, Stephen Edward, The Limits of Price Discrimination (September 24, 2014). Princeton University William S. Dietrich II Economic Theory Center Research Paper No. 052-2013. Available at SSRN: https://ssrn.com/abstract=2265420 or http://dx.doi.org/10.2139/ssrn.2265420

Dirk Bergemann

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 (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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