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Optimal membership design

Author

Listed:
  • Piotr Dworczak

    (Group for Research in Applied Economics (GRAPE)
    Northwestern University)

  • Marco Reuter

    (International Monetary Fund)

  • Scott Duke Kominers

    (Harvard Business School Harvard University
    Harvard Business Becker Friedman Institute for Research in Economics University of Chicago
    Department of Economics Harvard University)

  • Changhwa Lee

    (University of Bristol
    Group for Research in Applied Economics (GRAPE))

Abstract

Membership design involves allocating an economic good whose value to any individual depends on who else receives it. We introduce a framework for optimal membership design by combining an otherwise standard mechanism-design model with allocative externalities that depend flexibly on agents’ observable and unobservable characteristics. Our main technical result characterizes how the optimal mechanism depends on the pattern of externalities. Specifically, we show how the number of distinct membership tiers—differing in prices and potentially involving rationing—is increasing in the complexity of the externalities. This insight may help explain a number of mechanisms used in practice to sell membership goods, including musical artists charging below-market-clearing prices for concert tickets, heterogeneous pricing tiers for access to digital communities, the use of vesting and free allocation in the distribution of network tokens, and certain admission procedures used by colleges concerned about the diversity of the student body.

Suggested Citation

  • Piotr Dworczak & Marco Reuter & Scott Duke Kominers & Changhwa Lee, 2024. "Optimal membership design," GRAPE Working Papers 98, GRAPE Group for Research in Applied Economics.
    • Handle: RePEc:fme:wpaper:98
    as

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    File URL: https://grape.org.pl/WP/98_Dworczak_website.pdf
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    References listed on IDEAS

    as
    1. Tolga Yuret, 2008. "An Economic Analysis of Color-Blind Affirmative Action," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 24(2), pages 319-355, October.
    2. Yeon-Koo Che & Ian Gale & Jinwoo Kim, 2013. "Assigning Resources to Budget-Constrained Agents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(1), pages 73-107.
    3. Shai Bernstein & Eyal Winter, 2012. "Contracting with Heterogeneous Externalities," American Economic Journal: Microeconomics, American Economic Association, vol. 4(2), pages 50-76, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    membership; allocative externalities; pricing tiers; rationing;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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