The traditional theory of second-degree price discrimination tackles individual self-selection but does not address the possibility that buyers could form a coalition to conduct arbitrage. We study the optimal sale mechanism that takes into account both individual and coalition incentive compatibility. We show that the monopolist can achieve the same profit regardless of whether or not buyers can form a coalition. Although marginal rates of substitution are not equalized across buyers of different types in the optimal sale mechanism, they fail to realize the gains from arbitrage because of the transaction costs in coalition formation generated by asymmetric information.

Optimal Second-Degree Price Discrimination and Arbitrage: On the Role of Asymmetric Information Among Buyers / Doh-Shin Jeon; Domenico Menicucci. - In: RAND JOURNAL OF ECONOMICS. - ISSN 0741-6261. - STAMPA. - 36:(2005), pp. 337-360.

Optimal Second-Degree Price Discrimination and Arbitrage: On the Role of Asymmetric Information Among Buyers

MENICUCCI, DOMENICO
2005

Abstract

The traditional theory of second-degree price discrimination tackles individual self-selection but does not address the possibility that buyers could form a coalition to conduct arbitrage. We study the optimal sale mechanism that takes into account both individual and coalition incentive compatibility. We show that the monopolist can achieve the same profit regardless of whether or not buyers can form a coalition. Although marginal rates of substitution are not equalized across buyers of different types in the optimal sale mechanism, they fail to realize the gains from arbitrage because of the transaction costs in coalition formation generated by asymmetric information.
2005
36
337
360
Doh-Shin Jeon; Domenico Menicucci
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Utilizza questo identificatore per citare o creare un link a questa risorsa: https://hdl.handle.net/2158/214394
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