Screening with Congestion

We study the effect of congestion on monopoly second-degree price discrimination. We provide three results. First, with congestion, the firm does not always provide distinct contracts (i.e., it is not always optimal to price discriminate) and it is more likely for the low-valuation buyer to be excluded. Second, the presence of congestion implies that no buyer receives an efficient allocation. In particular, the high-valuation buyer might be offered a higher or a lower quality (relative to the first-degree price discrimination offer). Finally, congestion might be beneficial to buyers. Specifically, for values of the parameters for which all types are serviced, consumer surplus under second-degree price discrimination may be greater than consumer surplus under no price discrimination.