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Informing consumers about their own preferences

  • Inderst, Roman
  • Peitz, Martin

We analyze a model of monopolistic price discrimination where only some consumers are originally sufficiently informed about their preferences, e.g., about their future demand for a utility such as electricity or telecommunication. When more consumers become informed, we show that this benefits also those consumers who remain uninformed, as it reduces the firm's incentives to extract information rent. By reducing the costs of information acquisition or forcing firms to supply consumers with the respective information about past usage, policy can further improve welfare, as contracts become more efficient. The last observation stands in contrast to earlier findings by Crémer and Khalil (American Economic Review 1992), where all consumers are uninformed.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 30 (2012)
Issue (Month): 5 ()
Pages: 417-428

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Handle: RePEc:eee:indorg:v:30:y:2012:i:5:p:417-428
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Stole, Lars A, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 529-62, Winter.
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  8. Heski Bar-Isaac & Guillermo Caruana & Vicente Cunat, 2008. "Information Gathering and Marketing," Working Papers 08-17, New York University, Leonard N. Stern School of Business, Department of Economics.
  9. Xavier Gabaix & David Laibson, 2005. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," NBER Working Papers 11755, National Bureau of Economic Research, Inc.
  10. Lewis, Tracy R & Sappington, David E M, 1997. "Information Management in Incentive Problems," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 796-821, August.
  11. Dirk Bergemann & Juuso Valimaki, 2005. "Information in Mechanism Design," Cowles Foundation Discussion Papers 1532, Cowles Foundation for Research in Economics, Yale University.
  12. Jean-Charles Rochet & Lars A. Stole, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 277-311.
  13. Michael D. Grubb, 2006. "Selling to Overconfident Consumers," Discussion Papers 06-018, Stanford Institute for Economic Policy Research.
  14. Cremer, J. & Khalil, F., 1991. "Gathering Information Before Signing a Contract," Discussion Papers in Economics at the University of Washington 91-16, Department of Economics at the University of Washington.
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