The Optimality of Coarse Menus

Titulo: The Optimality of Coarse Menus

Abstract:  We consider a general nonlinear pricing environment with private information. We characterize the information structure that maximizes the seller’s profits. The seller who cannot observe the buyer’s willingness to pay can control both the signal that a buyer receives about his value and the selling mechanism. The optimal selling mechanism has finite items even with a continuum of types and we identify weak conditions under which the optimal mechanism has a single item. Thus the socially efficient variety of items is decreased drastically at the expense of higher revenue and lower information rents.