Purchase History and Product Personalization

49 Pages Posted: 23 Mar 2021

See all articles by Laura Doval

Laura Doval

Columbia University

Vasiliki Skreta

University of Texas at Austin - Department of Economics; University College London

Date Written: March 22, 2021

Abstract

Product personalization opens the door to price discrimination. A rich product line allows for higher consumer satisfaction, but the mere choice of a product carries valuable information about the consumer that the firm can leverage for price discrimination. Controlling the degree of product personalization provides the firm with an additional tool to curb ratcheting forces arising from consumers’ awareness of being price discriminated. Indeed, a firm's inability to not engage in price discrimination introduces a novel distortion: The firm offers a subset of the products that it would offer if, instead, the firm could commit to not price discriminate. Doing so gives commitment power to the firm: By ‘pooling’ consumers with different tastes to the same variety the firm commits not to learn their tastes.

Keywords: product-line design, price discrimination, dynamic mechanism design, information design, limited commitment

JEL Classification: D84, D86, L12, L13, L15

Suggested Citation

Doval, Laura and Skreta, Vasiliki, Purchase History and Product Personalization (March 22, 2021). Columbia Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3810111 or http://dx.doi.org/10.2139/ssrn.3810111

Laura Doval

Columbia University ( email )

420 West 118th Street
New York, NY 10027
United States

HOME PAGE: http://www.laura-doval.com

Vasiliki Skreta (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

HOME PAGE: http://vskreta.wixsite.com/vskreta

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

HOME PAGE: http://vskreta.wixsite.com/vskreta

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