Consumer Profiling via Information Design

32 Pages Posted: 20 Dec 2023 Last revised: 22 Jan 2024

See all articles by Itay P Fainmesser

Itay P Fainmesser

Johns Hopkins University - Carey Business School

Andrea Galeotti

London Business School

Ruslan Momot

University of Michigan, Stephen M. Ross School of Business

Date Written: December 5, 2023

Abstract

Platforms use purchase histories to profile customers, create consumer segments, and disclose them to sellers. Sellers target price offers to these segments, generating new data that enables further profiling. We characterize the platform's ability to learn consumers' valuations using only information design in constructing the segments disclosed to sellers. We then evaluate the implication for market outcomes. We find that there is a threshold so that the platform cannot accurately profile consumers with valuations above it but can do so for those with valuations below it. The threshold is the seller's optimal uniform price in the no-information case. As a consequence, the use of purchase data to profile customers increases total welfare without harming consumers.

Keywords: consumer profiling, information design

JEL Classification: D00, D41, D42, D60, D82

Suggested Citation

Fainmesser, Itay Perah and Galeotti, Andrea and Momot, Ruslan, Consumer Profiling via Information Design (December 5, 2023). Available at SSRN: https://ssrn.com/abstract=4655468 or http://dx.doi.org/10.2139/ssrn.4655468

Itay Perah Fainmesser

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://https://sites.google.com/site/itaypfainmesser/home

Andrea Galeotti

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Ruslan Momot (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

HOME PAGE: http://www.ruslanmomot.info

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