Hybrid Price Discrimination on a Vertically Integrated Platform

Abstract

On a vertically integrated platform, a subsidiary competes in prices with third-party sellers over two periods. The subsidiary obtains market-wide past purchase data after the first period, while third-party sellers either do not obtain data (exclusive use) or only obtain own past-customer data (shared use). Subsidiary’s informational advantage underpins hybrid price discrimination in the second period. With exclusive data use, price discrimination makes all retailers better off, compared to uniform pricing, and the subsidiary benefits more than its rivals. However, third-party sellers’ lack of information limits the extent to which the subsidiary can use its informational advantage. The platform has incentives to share past customer data with third-party sellers, and this benefits all retailers. With shared data use, despite informational asymmetry, all retailers benefit equally from discrimination, compared to uniform pricing. Mandatory sharing of past customer data does not harm the platform and benefits third-party sellers but, while leveling the playing field on the supply side, it harms consumers.

Keywords: Vertically integrated platforms, consumer data, price discrimination, retail competition

JEL Classification: L11, L13, D43, D82, D83