By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.
We study the welfare effects of price discrimination in a duopoly with both
captive and contested consumers. Using a unified information design approach,
we characterize the best and worst market segmentations for producer surplus,
consumer surplus, and social surplus. The firm-optimal segmentation, which divides
the market into two nested segments, consistently reduces consumer welfare
relative to uniform pricing. The consumer-optimal segmentation, which divides
the market into a symmetric segment and a nested segment, may sometimes yield
a Pareto improvement but does not necessarily coincide with the social-optimal
segmentation.
