Strategic anonymity and behavior-based pricing

Stefano Colombo (), Paolo Garella and Noriaki Matsushima

ISER Discussion Paper from Institute of Social and Economic Research, Osaka University

Abstract: We analyze behavior-based price discrimination (BBPD) where consumers choose between being identified (e.g., by opting in) or remaining anonymous, as opposed to mandatory opt-in. Opting in provides consumers with benefits but also enables firms to apply history-dependent pricing. Under voluntary opt-in, market segmentation becomes more fragmented compared to standard BBPD. Consumer surplus and social welfare are higher with voluntary opt-in, while firm profits increase under mandatory opt-in. However, if consumers heavily discount the future and firms are forward-looking, these results may reverse entirely. Our result implies that policymakers can ensure that consumers retain control over their data along with encouraging them to adopt a more forward-looking perspective.

Date: 2023-11, Revised 2025-01
New Economics Papers: this item is included in nep-com and nep-mic
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