Pigou Meets Wolinsky: Search, Price Discrimination, and Consumer Sophistication

Carl-Christian Groh, (cgroh@uni-bonn.de) and Jonas von Wangenheim (jwangenheim@uni-bonn.de)

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We study the competitive effects of personalized pricing in horizontally differentiated markets with search frictions. We integrate the possibility of first degree price discrimination into the classic Wolinsky (1986) framework of consumer search. If all consumers are rational, personalized pricing leads to higher consumer surplus if and only if there are no search frictions. If all consumers are unaware that firms price discriminate, i.e. are naive as in Eyster and Rabin (2005), this result is reversed: Personalized pricing improves consumer surplus unless search costs are prohibitive.

Keywords: search; price discrimination; welfare; bounded rationality; anonymity (search for similar items in EconPapers)
JEL-codes: D21 D43 D83 D90 (search for similar items in EconPapers)
Pages: 53
Date: 2024-04
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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