Here’s a reallly cool paper. Bergemann et al. (2015) The Limits of Price Discrimination. AER. DOI: http://dx.doi.org/10.1257/aer.20130848
ABSTRACT
We analyze the welfare consequences of a monopolist having additional information about consumers’ tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out “third degree price discrimination.” We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer sur- plus is nonnegative, (ii) producer surplus is at least as high as profits under the uniform monopoly price, and (iii) total surplus does not exceed the surplus generated by efficient trade.
Although today’s blog won’t dive into the mathematical detail of the paper, I want to highlight two key points that I found interesting for the paper.
First, alothough the problem being modeled and solved is essentially, a linear program, how the paper interpreted its results is remarkable. Second, the paper somewhat associates with the techniques and flavor of information design literatures, while addressing the most delicate play between consumers, sellers and intermediaries—the platforms.
Simply speaking, short and sweet. Like every seminal works should look like.