Price Discrimination in the Information Age: Prices, Poaching, and Privacy with Personalized Targeted Discounts

Simon Anderson, Alicia Baik and Nathan Larson

The Review of Economic Studies, 2023, vol. 90, issue 5, 2085-2115

Abstract: We study list price competition when firms can individually target consumer discounts (at a cost) afterwards, and we address recent privacy regulation (like the GDPR) allowing consumers to choose whether to opt-in to targeting. Targeted consumers receive poaching and retention discount offers. Equilibrium discount offers are in mixed strategies, but only two firms vie for each contested consumer and final profits on them are Bertrand-like. When targeting is unrestricted, firm list pricing resembles monopoly. For plausible demand conditions and if targeting costs are not too low, firms and consumers are worse off with unrestricted targeting than banning it. However, targeting induces higher (lower) list prices if demand is convex (concave), and either side of the market can benefit if list prices shift enough in its favour. Given the choice, consumers opt in only when expected discounts exceed privacy costs. Under empirically plausible conditions, opt-in choice makes all consumers better off.

Keywords: Targeted advertising; Competitive price discrimination; Discounting; Privacy; GDPR; Opt-in (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Working Paper: Price Discrimination in the Information Age: Prices, Poaching, and Privacy with Personalized Targeted Discounts (2019)
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