Deneckere (2006): “Screening when Some Agents are Nonstrategic: Does a Monopoly Need to Exclude

We characterize the optimal screening mechanism for a monopolist facing consumers who have privately known demands, some of whom have limited abilities to misrepresent their preferences. In particular, we show that communication with consumers plays an important role in the process of screening. Consumers who have better abilities to misrepresent informa-tion benefit from the presence of consumers who lack such abilities. Whenever the fraction of the latter group of consumers is positive, there is no exclusion: it is optimal for the firm to supply a positive quantity of the good to all consumers whose valuations exceed the marginal cost of production. Our analysis reflects the view that environments in which all individuals can costlessly and effortlessly manipulate and misrepresent their private information, although standard in economics, represent an extreme point in the spectrum of various possibilities. In fact, available evidence suggests that at least some individuals have limited ability to misrep-resent their true types and imitate the behavior of others