Personalized pricing, network effects, and commitment

Yan Xiong and Liyan Yang

Journal of Economic Theory, 2025, vol. 227, issue C

Abstract: Big data and data technology have facilitated the widespread adoption of personalized pricing practices. While price personalization enables firms to extract greater rent from consumers, it often reduces price transparency, which can negatively impact firm profits in situations involving consumer coordination. In such contexts, a firm's commitment to pricing strategies can become essential for restoring profitability. We explore several commitment devices available to firms and discuss their implications. These devices include delegating pricing decisions to a manager who prioritizes consumer surplus, leveraging existing networks as signals for later consumers or to build reputation, and implementing uniform pricing or price caps in response to regulatory restrictions.

Keywords: Personalized pricing; Network effects; Price observability; Commitment (search for similar items in EconPapers)
JEL-codes: D11 G32 L20 M14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:227:y:2025:i:c:s0022053125000821

DOI: 10.1016/j.jet.2025.106036

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