Working Paper: CEPR ID: DP17502
Authors: Dirk Bergemann; Tibor Heumann; Stephen Morris
Abstract: We consider a general nonlinear pricing environment with private information. We characterize the information structure that maximizes the seller's profits. The seller who cannot observe the buyer's willingness to pay can control both the signal that a buyer receives about his value and the selling mechanism. The optimal screening mechanism has finitely many items even with a continuum of types. We identify sufficient conditions under which the optimal mechanism has a single item. Thus, the socially efficient variety of items is decreased drastically at the expense of higher revenue and lower information rents.
Keywords: nonlinear pricing; finite menu; second-degree price discrimination; recommender system
JEL Codes: D44; D47; D83; D84
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Seller's control over information (D83) | Optimal pricing strategy (D40) |
| Optimal pricing strategy (D40) | Reduction in variety of items offered (L15) |
| Information design (Y10) | Revenue (H29) |
| Information design (Y10) | Information rents (D45) |
| Optimal mechanism (D47) | Pooling of buyer types (D16) |
| Pooling of buyer types (D16) | Seller's profits (D41) |
| Pooling of buyer types (D16) | Overall social welfare (D69) |
| Seller's control over information (D83) | Socially beneficial outcomes (O35) |