(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.” 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