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Natch

Economics

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Natch.com is an internet dating site that helps people meet partners by showing them profiles of potential matches. When a person signs up, she or he fills out a profile, then pays money to view profiles of others. The company has hundreds of profiles in the computer system and it costs nothing to email profiles to customers (so MC = 0). Suppose that there are two types of customers: desperate customers have an inverse demand for profiles given by pd = 40 − 2qd 1 and not-desperate customers have inverse demand pn = 20 − 2qn. The company has exactly one of each type of customer.

Now suppose that the information that the customers provide in their profile does provide the company with some information. Specifically, it is not enough to allow the company to perfectly price discriminate, but it does allow the company to observe whether or not the customer is desperate. What will its profits be if it sells profiles individually, but charges different prices to the desperate and non-desperate customers (that is, it engages in multi-market price discrimination)?