Screening Two Types

We characterize profit-maximizing menus in screening settings with an arbitrary set of alternatives in which the agent has one of two privately-known types. We assume that utilities are quasi-linear but impose no other restrictions (such as increasing differences) on the agent’s utility or the set of alternatives. Our characterization relies on a novel geometric approach, clarifies the role of increasing differences in the standard setting, and shows when random menus are beneficial. We describe novel applications to vertical and horizontal differentiation and multi-product bundling.

(joint with Nima Haghpanha)

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