Strategy-proof Market Segmentation against Price Discrimination

Abstract

Data regulations increasingly enable consumers to switch among market segments, making segmentation an endogenous outcome of strategic interaction. We study a model in which consumers choose segments before a monopolist sets segment-specific prices, and define a segmentation as strategy-proof when no consumer with positive measure can profitably deviate. Our main result provides a complete welfare characterization: in every strategy-proof segmentation, producer surplus is pinned at the uniform monopoly profit, consumer surplus ranges from the uniform monopoly level to the buyer-optimal level, and every consumer is weakly better off. We construct strategy-proof segmentations attaining every feasible outcome in this range. A finite-consumer model microfounds our solution concept, with equilibrium outcomes converging to our characterization as the population grows large.