<p>We analyze a simple model of second-degree price discrimination in which a consumer, after selecting a contract, may realize they misidentified their type or that their type has changed. Within this framework, we examine the scenario where the monopolist offers a best-contract guarantee, ensuring that the consumer always receives the contract that would have been ex post optimal for them. For a small probability of mistakes, we show that such a contract increases profits if the share of low types in the population is sufficiently low, while consumer welfare increases if that share is sufficiently high. Moreover, an increase in profits implies a decrease in consumer welfare, and vice versa. Hence, for some parameter values, a regulator that aims to protect consumers may find it beneficial to mandate best-contract guarantees, while for others, it may instead seek to prohibit them. Best-contract guarantees lower total welfare for most parameter values.</p>

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Best Contract Guarantees

  • Marco A. Haan

摘要

We analyze a simple model of second-degree price discrimination in which a consumer, after selecting a contract, may realize they misidentified their type or that their type has changed. Within this framework, we examine the scenario where the monopolist offers a best-contract guarantee, ensuring that the consumer always receives the contract that would have been ex post optimal for them. For a small probability of mistakes, we show that such a contract increases profits if the share of low types in the population is sufficiently low, while consumer welfare increases if that share is sufficiently high. Moreover, an increase in profits implies a decrease in consumer welfare, and vice versa. Hence, for some parameter values, a regulator that aims to protect consumers may find it beneficial to mandate best-contract guarantees, while for others, it may instead seek to prohibit them. Best-contract guarantees lower total welfare for most parameter values.