The Welfare Limits of Dividing Consumers into Markets

Irfan Tekdir’s economics preprint examines how dividing customers into publicly identified market segments changes the possible balance between consumers’ gains and firms’ profits.

What the study found

In an arXiv preprint, Tekdir studies a duopoly with two types of customers: captive consumers, tied to one firm, and contested consumers, whom the firms compete to serve. The author characterizes the combinations of consumer surplus and producer surplus that can arise across market compositions and public segmentations, and says a market can be constructed for each attainable pair. Consumer surplus measures the benefit consumers receive beyond what they pay.

The resulting set is lens-shaped. At a given level of industry profit, the author finds that consumers fare worst when captive and contested consumers are completely separated. They fare best in an unsegmented market where the firms have equally many captive customers. Markets with unequal captive bases and some contested consumers cannot reach that upper boundary under any segmentation.

Why it matters

The analysis connects market structure and segmentation to the distribution of economic gains. Tekdir also finds that, between the Bertrand-competition and monopoly endpoints, the best attainable consumer surplus is below what a single deterministic price producing the same profit would deliver. In the model, firms must randomize prices; with downward-sloping demand, the resulting price dispersion reduces consumer surplus.

Limits and unknowns

These are theoretical findings for the model described in the preprint, not evidence that a particular real-world market has these outcomes. The abstract does not specify the full model assumptions, the construction and proof methods, or how large the effects might be in practice.

Read the research

Authors: Irfan Tekdir

Published: 2026-10-29

Source basis: Based on the abstract only

Original abstract

In a duopoly with captive and contested consumers, I characterize every pair of consumer and producer surplus that can arise under some market composition and some public segmentation, and construct a market that produces each pair. The set is lens-shaped. At any level of industry profit, consumers do worst when captive and contested consumers are perfectly separated and best in an unsegmented market in which the two firms have equally many captives. A market with unequal captive bases and some contested consumers cannot reach this upper frontier under any segmentation. Between Bertrand competition and monopoly, the frontier itself lies strictly below what consumers would get if everyone paid a single deterministic price yielding the same profit. Firms must randomize, and with downward-sloping demand the resulting price dispersion lowers consumer surplus.

This article is an AI-generated adaptation, not a substitute for the original research. Preprints may not have been peer reviewed; AI can make mistakes.