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Price Discrimination in Selection Markets

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  • Andre Veiga

    (Imperial College Business School)

Abstract

Should insurance prices vary with age? I consider competitive markets for lemons where a signal (e.g., age) partitions consumers (e.g., young and old). I study the continuum of policies from zero price discrimination (zero PD, equal prices) to full PD (no restrictions). Restricting PD can increase welfare if high-cost markets exhibit greater adverse selection, or when the high-cost market “unravels.” I characterize optimal PD and show how it is affected by changes in cost. In a calibration, optimal PD increases welfare by about $30/person-year. I extend the model to arbitrary signal structures, behavioral consumers, a monopolized industry, and multiproduct firms.

Suggested Citation

  • Andre Veiga, 2025. "Price Discrimination in Selection Markets," The Review of Economics and Statistics, MIT Press, vol. 107(5), pages 1327-1340, September.
    • Handle: RePEc:tpr:restat:v:107:y:2025:i:5:p:1327-1340
    DOI: 10.1162/rest_a_01330
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