Strategy-proof Market Segmentation against Price Discrimination

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.