Personalized Pricing with Superior Preference Information and The Role of List Pricing
45 Pages Posted: 11 May 2016 Last revised: 8 Aug 2019
Date Written: July 31, 2019
We examine the implications of superior preference information on first-degree price discrimination. This situation arises when consumers have imperfect knowledge of their reservation values, whereas data aggregation enables the firm to have superior, or more accurate, preference information. We find that list pricing is essential to alleviate consumers’ suspicions of being tricked into overpaying. However, alleviating these suspicions prevents the firm from appropriating the entire consumer surplus, even though it is the most profitable personalized pricing scheme. Our results also suggest that the firm with a stronger informational advantage is not necessarily more profitable. In addition, some consumers may be strictly better off from personalized pricing.
Keywords: price discrimination, uninformed consumer preference, price signaling, data collection, privacy
JEL Classification: D42, L12
Suggested Citation: Suggested Citation