Product Variety and Market Segmentation "
Abstract:
We study market segmentation in settings where a monopolistic seller possesses an inventory containing several variants of a given good, and needs to decide which variant to offer in different markets. We fully characterize the combinations of consumer and producer surplus attainable as product variety becomes large. We show that, along the Pareto frontier, higher consumer surplus entails lower social welfare, revealing a trade off for the regulation of consumer privacy. We then study situations in which market segmentation arises from the sale of consumer data by intermediaries. Competition among data intermediaries results in lower match quality between consumers and products and lower social welfare.