Working Paper: CEPR ID: DP17898
Authors: Dirk Bergemann; Tibor Heumann; Stephen Morris
Abstract: We consider a general nonlinear pricing environment with private information. The seller can control both the signal that the buyers receive about their value and the selling mechanism. We characterize the optimal menu and information structure that jointly maximize the seller's profits. The optimal screening mechanism has finitely many items even with a continuum of values. 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: screening; nonlinear pricing; Bayesian persuasion; 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) | Profit maximization (L21) |
| Seller's ability to manipulate information structure (D83) | Buyer behavior (D12) |
| Seller's ability to manipulate information structure (D83) | Seller revenue (L85) |
| Optimal menu with persuasion (D91) | Seller profits (L85) |
| Pooling values into intervals (C43) | Information rents (D45) |
| Pooling values into intervals (C43) | Seller profits (L85) |
| Convex distribution of qualities (C46) | Optimal single-item menu (D41) |
| Quality distribution ratio bounds (C46) | Number of items in menu (Y10) |