Strategy-proof Market Segmentation against Price Discrimination

2026-03-20

AI Summary

This study addresses the design of market segmentation mechanisms that prevent price discrimination and eliminate consumers’ incentives to switch across markets, within the context of data regulation and cross-market consumer mobility. The work introduces the concept of “strategically immune market segmentation” and develops a theoretical framework integrating game theory, mechanism design, and welfare economics. Its central contribution is the construction of a family of strategically immune segmentation schemes that simultaneously ensure (i) no consumer has an incentive to deviate from their assigned market segment, (ii) producer surplus is at least as high as the monopolist’s profit under uniform pricing, and (iii) any feasible welfare allocation between the buyer-optimal outcome and the monopolist’s uniform-pricing benchmark can be achieved.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Multiagent Systems: Mechanism Design
• Search and Optimization: Mixed Discrete/Continuous Search

Application Category

• Economics, Online Markets and Human Computation: Uses of LLMs and GenAI for marketplace design, bidding, and strategic interactions
• Security and Privacy: Data transparency and provenance
• User Modeling, Personalization and Recommendation: Accountability, Transparency, and Ethics for personalization

Abstract

In light of prevailing data regulations, consumer mobility across diverse markets inherently endogenizes market segmentation. Considering such strategic interactions, we define a market segmentation as strategy-proof when no consumer (with positive measure) has an incentive to deviate to another market. We show that in every strategy-proof market segmentation, the producer surplus remains at the uniform monopoly level, and the consumer surplus is bounded between the buyer-optimal level and the uniform monopoly level. Remarkably, no consumer is worse off than in the case of a uniform monopoly. We also construct a family of strategy-proof segmentations to realize every possible welfare outcome.

Problem

• strategy-proof
• market segmentation
• price discrimination
• consumer mobility
• data regulation

Innovation

• strategy-proof segmentation
• price discrimination
• consumer mobility
• market segmentation
• producer surplus