Abstract

A platform segments a market and runs auctions in which firms bid for the access to market segments. Segmenting the market more finely allows firms to extract more profits from consumers but can decrease competition in the auctions. We first characterize extremal markets: markets that cannot be segmented further without reducing auction revenue. Second, we employ this result to characterize optimal segmentations in a Hotelling environment. Our results give an insight into the welfare losses and  consumer  surpluses resulting from for-profit market segmentation.