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Third Degree Price Discrimination Under Costly Information Acquisition

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  • Irfan Tekdir

Abstract

This paper investigates third-degree price discrimination under endogenous market segmentation. Segmenting a market requires access to information about consumers, and this information comes with a cost. I explore the trade-offs between the benefits of segmentation and the costs of information acquisition, revealing a non-monotonic relationship between consumer surplus and the cost of information acquisition for monopolist. I show that in some markets, allowing the monopolist easier access to customer data can also benefit customers. I also analyzed how social welfare reacts to changes in the cost level of information acquisition and showed that the non-monotonicity result is also valid in social welfare analysis.

Suggested Citation

  • Irfan Tekdir, 2024. "Third Degree Price Discrimination Under Costly Information Acquisition," Papers 2406.06026, arXiv.org.
    • Handle: RePEc:arx:papers:2406.06026
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    References listed on IDEAS

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    1. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2015. "The Limits of Price Discrimination," American Economic Review, American Economic Association, vol. 105(3), pages 921-957, March.
    2. Andrew Caplin & Mark Dean & John Leahy, 2019. "Rational Inattention, Optimal Consideration Sets, and Stochastic Choice," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(3), pages 1061-1094.
    3. Robert J. Aumann, 1995. "Repeated Games with Incomplete Information," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011476, April.
    4. Ludmila Matysková & Alfonso Montes, 2021. "Bayesian Persuasion With Costly Information Acquisition," CRC TR 224 Discussion Paper Series crctr224_2021_296, University of Bonn and University of Mannheim, Germany.
    5. Filip Matêjka & Alisdair McKay, 2015. "Rational Inattention to Discrete Choices: A New Foundation for the Multinomial Logit Model," American Economic Review, American Economic Association, vol. 105(1), pages 272-298, January.
    6. 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.
    7. Andrew Caplin & Mark Dean, 2013. "Behavioral Implications of Rational Inattention with Shannon Entropy," NBER Working Papers 19318, National Bureau of Economic Research, Inc.
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