Personalized Pricing with Superior Preference Information and The Role of List Pricing

45 Pages Posted: 11 May 2016 Last revised: 8 Aug 2019

See all articles by Zibin Xu

Zibin Xu

University of Southern California - Marshall School of Business

Anthony J. Dukes

University of Southern California - Marshall School of Business

Date Written: July 31, 2019

Abstract

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

Xu, Zibin and Dukes, Anthony J., Personalized Pricing with Superior Preference Information and The Role of List Pricing (July 31, 2019). 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://sites.usc.edu/anthonydukes/

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