Irrelevance of personalized pricing under strategic market segmentation

Xiaoxiao Hu and Haoran Lei

Papers from arXiv.org

Abstract: A multiproduct seller is more informed than consumers about the value of her products to consumers. The seller posts a price list and segments the market through cheap-talk communication. We find that when both seller's and consumers' incentive-compatibility constraints are satisfied, the seller cannot benefit from personalized pricing (i.e., third-degree price discrimination). Based on that observation, we provide a tractable characterization of seller's maximum equilibrium profits. We apply our analysis to a credence-good setup and discuss when the credence goods seller benefits from communication. The irrelevance result breaks down when we relax seller's incentive-compatibility constraints.

Date: 2023-03, Revised 2025-03
New Economics Papers: this item is included in nep-mic
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