Informing consumers about their own preferences

We analyze a model of monopolistic price discrimination where only some consumers are originally sufficiently informed about their preferences, e.g., about their future demand for a utility such as electricity or telecommunication. When more consumers become informed, we show that this benefits also those consumers who remain uninformed, as it reduces the firm's incentives to extract information rent. By reducing the costs of information acquisition or forcing firms to supply consumers with the respective information about past usage, policy can further improve welfare, as contracts become more efficient. The last observation stands in contrast to earlier findings by Crémer and Khalil (American Economic Review 1992), where all consumers are uninformed. ► Price discrimination when only some customers initially know their preferences. ► Uninformed customers benefit from the presence of informed customers. ► Reducing the costs of information acquisition can increase welfare. ► This is in contrast to earlier results in the literature.