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Monopolistic group design with peer effects

Author

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  • Board, Simon

    () (Department of Economics, University of California Los Angeles)

Abstract

In a range of settings, private firms manage peer effects by sorting agents into different groups, be they schools, communities, or product categories. This paper considers such a firm, which controls group entry by setting a series of anonymous prices. We show that private provision systematically leads to two distortions relative to the efficient solution: first, agents are segregated too finely; second, too many agents are excluded from all groups. We demonstrate that these distortions are a consequence of anonymous pricing and do not depend upon the nature of the peer effects. This general approach also allows us to assess the way the `returns to scale' of peer technology and the cost of group formation affect the optimal group structure.

Suggested Citation

  • Board, Simon, 2009. "Monopolistic group design with peer effects," Theoretical Economics, Econometric Society, vol. 4(1), March.
  • Handle: RePEc:the:publsh:413
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Mazali, Rogério & Rodrigues-Neto, José A., 2013. "Dress to impress: Brands as status symbols," Games and Economic Behavior, Elsevier, vol. 82(C), pages 103-131.
    2. Terence Johnson, 2009. "Matching Through Position Auctions," Working Papers 001, University of Notre Dame, Department of Economics, revised Jan 2011.
    3. Renato Gomes & Alessandro Pavan, 2013. "Cross-Subsidization and Matching Design," Discussion Papers 1559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Gomes, Renato & Pavan, Alessandro, 2016. "Many-to-many matching and price discrimination," Theoretical Economics, Econometric Society, vol. 11(3), September.
    5. Alessandro Pavan & Renato Gomes, 2011. "Many-to-Many Matching Design and Price Discrimination," 2011 Meeting Papers 1212, Society for Economic Dynamics.
    6. Johnson, T.R., 2013. "Matching through position auctions," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1700-1713.
    7. Böhme Enrico, 2016. "Second-Degree Price Discrimination on Two-Sided Markets," Review of Network Economics, De Gruyter, vol. 15(2), pages 91-115, June.
    8. Friedrichsen, Jana, 2018. "Signals Sell: Product Lines when Consumers Differ Both in Taste for Quality and Image Concern," Rationality and Competition Discussion Paper Series 70, CRC TRR 190 Rationality and Competition.
    9. Alexis Le Chapelain, 2014. "Market for Education and Student Achievement," Sciences Po publications info:hdl:2441/1jgbspo1909, Sciences Po.
    10. Thomas Gall & Patrick Legros & Andrew F. Newman, 2009. "Mis-match, Re-match, and Investment," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-189, Boston University - Department of Economics.
    11. Friedrichsen, Jana, 2016. "Signals sell: Designing a product line when consumers have social image concerns," Discussion Papers, Research Unit: Market Behavior SP II 2016-202, Social Science Research Center Berlin (WZB).

    More about this item

    Keywords

    Mechanism design; peer effects; public goods; network effects;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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