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Conditioning Prices on Purchase History

Alessandro Acquisti
Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Hal R. Varian
University of California, Berkeley - School of Information; University of California, Berkeley - Operations and Information Technology Management Group; National Bureau of Economic Research (NBER)

September 25, 2002

SIMS Working Paper

Abstract:
Many transactions are now computer mediated, making it possible for sellers to condition their pricing on the history of interactions with individual consumers. This paper investigates conditions under which price conditioning will or will not be used. Our simplest model involves rational consumers with constant valuations for the good being sold and a monopoly seller who can commit to a pricing policy. In this framework, the seller will not find it profitable to condition pricing on past behavior. We consider various generalizations of this model, such as allowing the seller to offer enhanced services to previous customers, making the seller unable to commit to a pricing policy, and allowing competition in the marketplace. All of these generalizations have equilibria with price conditioning.

Keywords: Price discrimination, Price conditioning, Privacy, Ecommerce, Microeconomics

JEL Classifications: D11, D21, D91, L15

Working Paper Series

Date posted: November 19, 2002 ; Last revised: November 19, 2002

Suggested Citation

Acquisti, Alessandro and Varian, Hal R., Conditioning Prices on Purchase History (September 25, 2002). SIMS Working Paper. Available at SSRN: http://ssrn.com/abstract=336684 or doi:10.2139/ssrn.336684

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Contact Information

Alessandro Acquisti (Contact Author) Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email ) Pittsburgh, PA 15213-3890 United States 412-268-9853 (Phone) 412-268-5339 (Fax)
Hal R. Varian University of California, Berkeley - School of Information ( email ) 102 South Hall Berkeley, CA 94720-4600 United States 510-642-9980 (Phone) 510-642-5814 (Fax) HOME PAGE: http://www.sims.berkeley.edu/~hal/people/hal/biography.html
University of California, Berkeley - Operations and Information Technology Management Group ( email ) 545 Student Services Building Berkeley, CA 94720 United States 510-643-6388 (Phone)
National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge, MA 02138 United States