Competition and Public Information: A Note

We study price discrimination in a market in which two firms engage in Bertrand competition. Some consumers are contested by both firms, and other consumers are “captive” to one of the firms. The market can be divided into segments, which have different relative shares of captive and contested consumers. It is shown that the revenue-maximizing segmentation involves dividing the market into “nested” markets, where exactly one firm may have captive consumers.