Stephen Morris Publications

We analyze a nonlinear pricing model where the seller controls both product pricing (screening) and buyer information about their own values (persuasion). We prove that the optimal mechanism always consists of finitely many signals and items, even with a continuum of buyer values. The seller optimally pools buyer values and reduces product variety to minimize informational rents. We show that value pooling is optimal even for finite value distributions if their entropy exceeds a critical threshold. We also provide sufficient conditions under which the optimal menu restricts offering to a single item.

We study the role of information in Bertrand competition with differentiated goods and heterogeneous production costs. When producers know their costs and consumers know their values, consumer surplus and total surplus are aligned, in the sense that the information and equilibrium that maximize consumer surplus also maximize total surplus. Alignment may fail if consumers do not know their values: Partial information about values makes purchases less efficient but intensifies price competition. We illustrate this within a Hotelling duopoly framework.