When is Inducing Self-Selection Sub-optimal for a Monopolist

Abstract

Stokey (1979) showed in an intertemporal context that, under reasonable assumptions, price discrimination is never optimal if a monopolist can pre-commit to a price path. This note explores the implications of Stokey's result for the optimality of inducing self-selection in the static quantity and quality contexts of Spence (1980) and Mussa-Rosen (1978). It is shown that Stokey's result carries over to these other contexts under appropriate curvature assumptions. Moreover, even under traditional curvature assumptions, inducing self-selection may be suboptimal. Necessary and sufficient conditions for discrimination to be optimal are derived for the two-type case.