(Reverse) Price Discrimination with Information Design

67 Pages Posted: 16 Oct 2018 Last revised: 2 Mar 2020

See all articles by Dong Wei

Dong Wei

University of California, Berkeley - Department of Economics

Brett Green

Washington University in St. Louis - John M. Olin Business School

Date Written: February 28, 2020

Abstract

A monopolistic seller is marketing a good to a customer whose willingness to pay is determined by both his private type and the quality of the good. The seller can design a menu of both prices and experiments—that reveal information about quality. We show that the optimal mechanism features both price discrimination and information discrimination: buyers with higher private types face lower prices and receive less precise positive signals. Our mechanism remains optimal within a general class of mechanisms satisfying ex post individually rationality. Overall, information design facilitates surplus creation on the extensive margin, but leads to surplus destruction on the intensive margin.

Keywords: price discrimination, mechanism design, information design, online advertising

JEL Classification: D82, D86, L15

Suggested Citation

Wei, Dong and Green, Brett, (Reverse) Price Discrimination with Information Design (February 28, 2020). Available at SSRN: https://ssrn.com/abstract=3263898 or http://dx.doi.org/10.2139/ssrn.3263898

Dong Wei (Contact Author)

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

Brett Green

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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