Reverse AGT Workshop: "Price Discrimination"
About this series:
At the Reverse AGT Workshop local economists will present an area of economic study for an algorithmic game theory (AGT) audience. The presentations will include a brief introduction to the area and several current research topics. The schedule includes ample time for discussion to make connections to related research in AGT and to highlight research questions that methods from AGT might help to answer. The workshop series is organized by Glen Weyl, Brendan Lucier, and Jason Hartline in conjunction with The Center for Research on Computation and Society at Harvard and Microsoft Research.
Optimal mechanism design considers how firms can design sales procedures to maximize their revenue. Price of anarchy analyses consider the loss of social welfare due to rational consumer behavior in suboptimal mechanisms. The economic theory of the welfare effects of price discrimination combines these problems by asking how the ability of firms to offer more complicated mechanisms to maximize revenue, relative to setting a uniform price, will impact social welfare and its distribution between the firm and consumers. Stephen Morris will cover the impacts of third degree price discrimination, explicitly treating different buyers differently. Eric Maskin will cover second-degree price discrimination, the offering of goods of various quality classes to encourage buyers to sort themselves into appropriately-priced offerings. Glen Weyl will offer a new perspective on the distributive effects of price discrimination, emphasizing the distribution of surplus among different types of buyers (rich and poor) rather than between buyers and seller.
2:25: Coffee and cookies
2:30: Stephen Morris: Price Discrimination and Welfare
3:00: Q/A and discussion
3:15: Eric Maskin: Introduction to Second-Degree Price Discrimination
3:45: Q/A and discussion
4:00: Glen Weyl: Third-Degree Monopoly Price Discrimination is Usually Efficient and Egalitarian
4:30: Q/A and discussion
4:45: Coffee and cookies
5:15: Summary discussion and closing comments
Price Discrimination and Welfare
A large and classic literature in economics has characterized the welfare implications of price discrimination using calculus arguments and exogenous market segmentations. We will discuss recent work characterizing welfare implications using linear programming methods allowing all market segmentations. Possible extensions and the relation to algorithmic mechanism design will be discussed.
Introduction to Second-Degree Price Discrimination
Second-degree price discrimination is the practice of charging consumers different prices according to how much they buy. In this talk, I give an introduction to the theory, showing why such discrimination generally benefits a seller and what form it is likely to take.
Third-Degree Monopoly Price Discrimination is Usually Efficient and Egalitarian
The standard view about third-degree monopoly price discrimination is that its social welfare effects are ambiguous, but probably more often harmful than not, and that it is inegalitarian, transferring resources from poor consumers to rich firms. We argue both of these perspectives are misleading. If willingness-to-pay has a bell-shaped distribution in both markets, as most empirical evidence indicates is usually the case, price discrimination is always aggregate welfare enhancing. if the third-degree discrimination is based on income or a proxy for it, prices fall to poor consumers and rise to rich consumers. This intra-consumer transfer is often larger than the aggregate transfer from consumer to firms and wealthy consumers are usually richer than firms. This is based on work very much in progress and I will highlight many outstanding questions especially related to second-degree discrimination and oligopoly.