(Reverse) Price Discrimination with Information Design

63 Pages Posted: 16 Oct 2018 Last revised: 22 Mar 2022

See all articles by Dong Wei

Dong Wei

University of California, Santa Cruz - Department of Economics

Brett Green

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

Date Written: March 21, 2022

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.” 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 discerning positive signals. Moreover, we demonstrate the complementary nature of these two forms of discrimination. Our mechanism remains optimal within a general class of mechanisms satisfying ex-signal individual rationality. Discriminatory 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 (March 21, 2022). Available at SSRN: https://ssrn.com/abstract=3263898 or http://dx.doi.org/10.2139/ssrn.3263898

Dong Wei (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Santa Cruz, CA 95064
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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