Online Privacy and Price Discrimination
35 Pages Posted: 22 Oct 2010
Date Written: July 2010
When a firm is able to recognize its previous customers, it may use information about their purchase histories to price discriminate. We analyze a model with a monopolist and a continuum of heterogeneous consumers, where consumers are able to maintain their anonymity and avoid being identified as past customers, possibly at an (exogenous) cost. When consumers can costlessly maintain their anonymity, they all individually choose to do so, which paradoxically results in the highest profit for the firm. Increasing the cost of anonymity can benefit consumers, but only up to a point, after which the effect is reversed.
Keywords: Privacy, anonymity, price discrimination, electronic commerce
JEL Classification: L1, D8
Suggested Citation: Suggested Citation