Targeted Advertising and Price Discrimination in Intermediated Online Markets
75 Pages Posted: 20 Nov 2017 Last revised: 12 Aug 2019
Date Written: August 5, 2019
Online tracking technologies (e.g. HTTP cookies) allow firms to engage in both targeted advertising and price discrimination. By adopting anonymizing technologies, consumers can prevent firms from tracking them. This paper analyzes firms’ pricing decisions and consumers’ adoption of anonymizing technologies in markets where advertising slots are sold by a two-sided intermediary. In equilibrium, firms engage in price discrimination and the introduction of tracking technologies is Pareto improving for consumers. Introducing behavioral consumers in the market imposes a negative externality on rational consumers and may completely overturn the welfare effects of the introduction of tracking technologies.
Keywords: targeted advertising, price discrimination, privacy, information disclosure
JEL Classification: D4, D9
Suggested Citation: Suggested Citation