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Monopolistic Group Design with Peer Effects

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  • Simon Board

Abstract

In a range of settings, private firms manage peer effects by sorting agents into different groups, be they schools, neighbourhoods or teams. This paper considers such a firm, which controls group entry by setting a series of anonymous prices. We show that private provision systematically leads to two distortions relative to the efficient solution: first, agents are segregated too finely; second, too many agents are excluded from all groups. We demonstrate that these distortions are a consequence of anonymous pricing and do not depend upon the nature of the peer effects. This general approach also allows us to assess the way the `returns to scale' of peer technology and the cost of group formation affect the optimal group structure.

Suggested Citation

  • Simon Board, 2007. "Monopolistic Group Design with Peer Effects," Working Papers tecipa-276, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-276
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    References listed on IDEAS

    as
    1. Jacob M. Markman & Eric A. Hanushek & John F. Kain & Steven G. Rivkin, 2003. "Does peer ability affect student achievement?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(5), pages 527-544.
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    More about this item

    Keywords

    mechanism design; peer effects; public goods;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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