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.