Personalized Pricing with Superior Information on Consumer Preferences
34 Pages Posted: 11 May 2016 Last revised: 14 Jul 2017
Date Written: July 2, 2017
We examine the implications of superior information on consumer preferences in first-degree price discrimination. Superior information occurs when data aggregation enables a firm to learn beyond consumers about their willingness-to-pay. Consumer beliefs may be adversely affected due to suspicions of being overcharged by the firm, therefore, effective price discrimination requires the use of a list price to convince uninformed consumers of their type. Because list pricing incurs a signaling cost, the firm, even with price discrimination, is unable to appropriate all consumer surplus. Sometimes the firm may be worse off with superior information. However, there also exist conditions under which price discrimination with superior information is a strict Pareto improvement for the firm and every type of consumers.
Keywords: Price discrimination, uninformed consumer preference, price signaling, data collection, privacy
JEL Classification: D42, L12
Suggested Citation: Suggested Citation