Complex Menus in Discriminatory Pricing

Abstract

Advances in technology decrease the costs of offering and choosing from large menus of varieties. As these complexity costs fall, how large are the menus offered by monopolists likely to become? For the multi-product or multi-attribute case, ubiquitous in practice, we show that optimal menus are generically infinite in the absence of complexity costs. Complexity costs can decrease the menu size, but it grows without bound as these costs decrease. These results have no analogue in the single-dimensional model and do not rely on non-linearities in production costs or preferences; the extensive product differentiation is caused by screening considerations alone.