The Limits of Price Discrimination
AbstractWe 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 profits under the uniform monopoly price, and (iii) total surplus does not exceed the efficient gains from trade. As well as characterizing the welfare impact of price discrimination, we examine the limits of how prices and quantities can change under price discrimination. We also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1896.
Length: 52 pages
Date of creation: May 2013
Date of revision:
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Other versions of this item:
- Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2013. "The Limits of Price Discrimination," Cowles Foundation Discussion Papers 1896R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2013.
- Dirk Bergemann & Benjamin A. Brooks & Stephen Morris, 2013. "The Limits of Price Discrimination," Levine's Working Paper Archive 786969000000000776, David K. Levine.
- Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2013. "The Limits of Price Discrimination," Cowles Foundation Discussion Papers 1896RR, Cowles Foundation for Research in Economics, Yale University, revised Apr 2014.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-24 (All new papers)
- NEP-COM-2013-05-24 (Industrial Competition)
- NEP-CTA-2013-05-24 (Contract Theory & Applications)
- NEP-IND-2013-05-24 (Industrial Organization)
- NEP-MIC-2013-05-24 (Microeconomics)
- NEP-MKT-2013-05-24 (Marketing)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- âThe Limits of Price Discrimination,â D. Bergemann, B. Brooks and S. Morris (2013)
by afinetheorem in A Fine Theorem on 2014-01-21 07:49:06
- Matthew Gentzkow & Emir Kamenica, 2014. "Costly Persuasion," American Economic Review, American Economic Association, vol. 104(5), pages 457-62, May.
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