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Personalized Pricing with Superior Information on Consumer Preferences

34 Pages Posted: 11 May 2016 Last revised: 14 Jul 2017

Zibin Xu

University of Southern California - Marshall School of Business

Anthony J. Dukes

University of Southern California - Marshall School of Business

Date Written: July 2, 2017

Abstract

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

Xu, Zibin and Dukes, Anthony J., Personalized Pricing with Superior Information on Consumer Preferences (July 2, 2017). Available at SSRN: https://ssrn.com/abstract=2777081 or http://dx.doi.org/10.2139/ssrn.2777081

Zibin Xu

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Anthony J. Dukes (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States
213-740-3846 (Phone)

HOME PAGE: http://www-bcf.usc.edu/~dukes/

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