Document Type

Discussion Paper

Publication Date

5-1-2013

CFDP Number

1896R3

CFDP Revision Date

2014-09-01

CFDP Pages

56

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 surplus is non-negative, (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.

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