Optimal opaqueness: Multi-product monopoly pricing without contractual restrictions
Coauthors: Simon Loertscher
Abstract:
This paper studies multi-product monopoly problems on the Hotelling line with a continuum of uniformly distributed consumers who are privately informed about their locations and have linear transportation costs. The setup gives rise to new challenges for market definition in the merger review process. Mergers of independent sellers to a multi-product firm that, by standard measures, would be deemed neutral decrease consumer surplus, are profitable and can increase social surplus. With optimally placed products, every product is also sold as part of an opaque product. Opaque products are inefficient, allow the firm to extract more revenue and thus provide an instance of product proliferation. Solving the optimal placement problem first requires deriving the optimal mechanism for selling products in the interior of the Hotelling line. This is a mechanism design problem that exhibits simultaneously countervailing incentives and binding non-local incentive compatibility constraints. Extensions analyze vertical differentiation, optimally placing and selling many goods, both on the Hotelling line and on the Salop circle, and quadratic transportation costs.
Organized by: Vitor Farinha Luz
