(Reverse) Price Discrimination with Information Design

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