When (Not) to Segment Markets
AbstractA monopoly decides whether to segment two separate markets. Demand depends on stochastic shocks and some buyers are uninformed about the quality of the good. Contrary to the case of complete information, we show that it is not always more profitable for the firm to segment the markets in an environment in which some buyers have incomplete information. The reason is that the presence of uninformed buyers provides the firm with the incentive to engage in noisy price-signaling. Indeed, if the benefit from price flexibility (through market segmentation) is offset by the cost of signaling quality through two distinct prices, then it is optimal not to segment the markets and to use uniform pricing.
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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 1335.
Date of creation: 2013
Date of revision:
Market integration; market segmentation; Learning; Monopoly; Profits; Noisy signaling; Third-degree price discrimination;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-05 (All new papers)
- NEP-COM-2013-10-05 (Industrial Competition)
- NEP-CTA-2013-10-05 (Contract Theory & Applications)
- NEP-IND-2013-10-05 (Industrial Organization)
- NEP-MIC-2013-10-05 (Microeconomics)
- NEP-MKT-2013-10-05 (Marketing)
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