IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2401.12366.html
   My bibliography  Save this paper

Consumer-Optimal Segmentation in Multi-Product Markets

Author

Listed:
  • Dirk Bergemann
  • Tibor Heumann
  • Michael C. Wang

Abstract

We analyze how market segmentation affects consumer welfare when a monopolist can engage in both second-degree price discrimination (through product differentiation) and third-degree price discrimination (through market segmentation). We characterize the consumer-optimal market segmentation and show that it has several striking properties: (1) the market segmentation displays monotonicity$\unicode{x2014}$higher-value customers always receive higher quality product than lower-value regardless of their segment and across any segment; and (2) when aggregate demand elasticity exceeds a threshold determined by marginal costs, no segmentation maximizes consumer surplus. Our results demonstrate that strategic market segmentation can benefit consumers even when it enables price discrimination, but these benefits depend critically on demand elasticities and cost structures. The findings have implications for regulatory policy regarding price discrimination and market segmentation practices.

Suggested Citation

  • Dirk Bergemann & Tibor Heumann & Michael C. Wang, 2024. "Consumer-Optimal Segmentation in Multi-Product Markets," Papers 2401.12366, arXiv.org, revised Dec 2024.
    • Handle: RePEc:arx:papers:2401.12366
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2401.12366
    File Function: Latest version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Joan Robinson, 1969. "The Economics of Imperfect Competition," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-1-349-15320-6, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Louis Alessi, 1974. "Aneconomic analysis of government ownership and reculation," Public Choice, Springer, vol. 19(1), pages 1-42, September.
    2. Iga Magda & Ewa Cukrowska-Torzewska, 2019. "Gender wage gap in the workplace: Does the age of the firm matter?," IBS Working Papers 01/2019, Instytut Badan Strukturalnych.
    3. Marina D. SIMONOVA & Irina P. MAMIY, 2019. "Online transport services market in Russia amid economy digitalization," Upravlenets, Ural State University of Economics, vol. 10(3), pages 94-103, July.
    4. Boris Hirsch & Marion König & Joachim Möller, 2013. "Is There a Gap in the Gap? Regional Differences in the Gender Pay Gap," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(4), pages 412-439, September.
    5. Pérez, Jorge & Vial, Felipe & Zárate, Román, 2022. "Urban Transit Infrastructure: Spatial Mismatch and Labor Market Power," Research Department working papers 1992, CAF Development Bank Of Latinamerica.
    6. Stephan Unger, 2019. "The Effect of Allocative Efficiency of Free Markets on Entropy and its Implications on Taxes," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 5(4), pages 287-300, October.
    7. Mark Hayes, 2016. "Trades unions, real wages and full employment," Working Papers PKWP1615, Post Keynesian Economics Society (PKES).
    8. Donald Harris, 1972. "The black ghetto as colony: A theoretical critique and alternative formulation," The Review of Black Political Economy, Springer;National Economic Association, vol. 2(4), pages 3-33, September.
    9. Alireza Fallah & Michael I. Jordan & Ali Makhdoumi & Azarakhsh Malekian, 2024. "The Limits of Price Discrimination Under Privacy Constraints," Papers 2402.08223, arXiv.org, revised Jun 2024.
    10. Vicente Moreno-Casas, 2024. "A coevolutionary approach to institutional lock-in," Review of Evolutionary Political Economy, Springer, vol. 5(3), pages 495-509, October.
    11. Corrado Benassi & Marcella Scrimitore, 2017. "Income Distribution in Network Markets," Journal of Industry, Competition and Trade, Springer, vol. 17(3), pages 251-271, September.
    12. Einer Elhauge & Barry Nalebuff, 2017. "The Welfare Effects of Metering Ties," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(1), pages 68-104.
    13. J. E. King, 2000. "Introduction to an Unpublished Note by Nicholas Kaldor & Joan Robinson," Review of Political Economy, Taylor & Francis Journals, vol. 12(3), pages 261-265.
    14. Tamara TODOROVA, 2021. "Some Efficiency Aspects of Monopolistic Competition: Innovation, Variety and Transaction Costs," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 12(2), pages 82-88.
    15. Bergemann, Dirk & Castro, Francisco & Weintraub, Gabriel, 2022. "Third-degree price discrimination versus uniform pricing," Games and Economic Behavior, Elsevier, vol. 131(C), pages 275-291.
    16. Thomas E. Lambert & Edward Kwon, 2015. "Monopoly capital and capitalist inefficiency," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(4), pages 533-552, July.
    17. Dirk Bergemann & Tibor Heumann & Michael C. Wang, 2024. "A Unified Approach to Second and Third Degree Price Discrimination," Cowles Foundation Discussion Papers 2376, Cowles Foundation for Research in Economics, Yale University.
    18. Jérémy Tanguy & Sylvie Blasco & Johanne Bacheron & Eva Moreno Galbis, 2024. "Labor market concentration and gender gaps," French Stata Users' Group Meetings 2024 31, Stata Users Group.
    19. Ganguly, Arpan & Spinola, Danilo, 2024. "Growth and distribution regimes under global value chains: Diversification, integration, and uneven development," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 634-649.
    20. Marcel Steffen Eckardt, 2022. "Minimum wages in an automating economy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(1), pages 58-91, February.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2401.12366. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.