Outline

Monopoly and monopsony pricing problems are of long-standing interest in economics. With the
emergence of large online platforms in the digital age, they have received renewed salience and attention.
This course provides an overview of recent theoretical advances based on incomplete information models.
These shed new light on a broad array of issues, ranging from the optimality of rationing and involuntary
unemployment to resale, opaque pricing by multi-product monopolies, market definition in antitrust and
merger effects to optimal regulation in the tradition of Ramsey.
The incomplete information approach not only provides a coherent explanation for otherwise puzzling
phenomena. For example, why does the seller of concert tickets underprice these, thereby inviting resale,
rather than set a market-clearing price? Why do multi-product sellers offer opaque products, leaving buyers
in the dark as to what they purchased until after the fact? It also implies that, because of incentive
compatibility, perfect price discrimination is not possible, and it permits clear-cut predictions of the form
price discrimination takes, with and without resale. By assuming that the firm always chooses the optimal
mechanism, the approach is immune to the criticism that its predictions hinge on ad-hoc restrictions. A
tradeoff between social surplus and profit derives from the primitives.