Redistribution Through Market Segmentation

TL;DR

This paper analyzes optimal market segmentation strategies for monopolists aiming at redistribution, revealing they induce progressive pricing and may prioritize profits over consumer surplus, with implementable regulation methods.

Contribution

It characterizes the structure of optimal redistributive segmentations and demonstrates their implications for pricing and regulation strategies.

Findings

Optimal segmentations induce progressive pricing.

They may prioritize profits over consumer surplus.

Implementable via price-based regulation.

Abstract

We study how to optimally segment monopolistic markets with a redistributive objective. We characterize optimal redistributive segmentations and show that they (i) induce the seller to price progressively, i.e., charge richer consumers higher prices than poorer ones, and (ii) may not maximize consumer surplus, instead granting extra profits to the monopolist. We further show that optimal redistributive segmentations are implementable via price-based regulation.