It has long been known that third degree price discrimination --- the practice of charging different prices to consumers in distinct market segments--- may increase or decrease consumer surplus. However, the potential benefits for consumers of third degree price discrimination when the seller can simultaneously engage in second degree price discrimination is more limited. We study the interplay between second and third degree price discrimination, with a particular focus on how and when market segmentation benefits consumers.

The arrival of digital commerce has lead to an increasing use of personalization and differentiation strategies. With differentiated products along the quality dimension and/or the quantity dimension comes the need for nonlinear pricing policies or second degree price discrimination. The optimal pricing strategies for quality and quantity differentiated products were first investigated by Mussa and Rosen (1978) and Maskin and Riley (1984), respectively. The optimal pricing strategies were shown to depend heavily on the prior distribution of the private information regarding the types, and ultimately the willingness-to-pay of the buyers. Yet, frequently the sellers possess only weak and incomplete information about the distribution of demand. This paper aims to develop robust pricing policies that are independent of specific demand distributions and provide revenue guarantees across all possible distributions.