Optimized Sticky Targeted Pricing

Abstract

Emerging tracking data allow precise predictions of individuals’ reservation values. However, firms are reluctant to conspicuously implement personalized pricing because of concerns about consumer reprisals. This paper examines a concealed form of personalized pricing. Specifically, firms sometimes tailor the “posted price” for the arriving consumer but privately commit to change price infrequently, making it nearly indistinguishable from traditional dynamic pricing. I find this strategy raises profits for medium and low popularity products. I then document similar pricing patterns at Amazon, suggesting that an equivalent strategy is already deployed. Overlooking such price discrimination may have large implications.

Keywords: Personalized Pricing, Targeted Pricing, Sticky Pricing, Dynamic Pricing, Price Discrimination

JEL Classification: D40, D83,L81