Purchase history and product personalization

Laura Doval and Vasiliki Skreta

Papers from arXiv.org

Abstract: Product personalization opens the door to price discrimination. A rich product line allows firms to better tailor products to consumers' tastes, but the mere choice of a product carries valuable information about consumers that can be leveraged for price discrimination. We study this trade-off in an upstream-downstream model, where a consumer buys a good of variable quality upstream, followed by an indivisible good downstream. The downstream firm's use of the consumer's purchase history for price discrimination introduces a novel distortion: The upstream firm offers a subset of the products that it would offer if, instead, it could jointly design its product line and downstream pricing. By controlling the degree of product personalization the upstream firm curbs ratcheting forces that result from the consumer facing downstream price discrimination.

Date: 2021-03, Revised 2023-07
New Economics Papers: this item is included in nep-com and nep-mic
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Citations: View citations in EconPapers (1)

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Working Paper: Purchase history and product personalization (2021)
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