Competitive Nonlinear Pricing for Signals

Topic:

Competitive Nonlinear Pricing for Signals

Time&Date: 

15:00-16:15 pm, 2019/4/12 (Friday)

Venue:

Room 619, Teaching A

Speaker:

Dr. Zhuoran Lu (Fudan University)

This paper studies nonlinear pricing for horizontally differentiated products that provide signaling value to consumers, who choose how much to purchase as a signal to the receivers. We characterize the optimal symmetric price schedules under different market structures. Under monopoly, when the receivers observe the price schedule, the market is partially covered, and quantity is downward distorted if there is slight horizontal differentiation. As the degree of horizontal differentiation rises, the market coverage rises, and the downward distortion decreases. When the degree is sufficiently high, for a certain level of signaling intensity, the monopolistic allocation achieves the first-best; for higher signaling intensities, quantity is upward distorted at the low end. In contrast, when the receivers do not observe the price schedule, the market is always partially covered, and the allocation is more dispersed than that in the observed case. Specifically, higher types purchase more than in the observed case, with the highest types purchasing more than the first-best, whereas lower types purchase less than in the observed case, with more types excluded from the market. When the market structure changes from monopoly to duopoly, market competition results in a higher market coverage and larger quantities for both the observed and unobserved case.