The Limits of Price Discrimination Under Privacy Constraints

Alireza Fallah, Michael I. Jordan, Ali Makhdoumi and Azarakhsh Malekian

Papers from arXiv.org

Abstract: We study a producer's problem of selling a product to a continuum of privacy-conscious consumers, where the producer can implement third-degree price discrimination, offering different prices to different market segments. We consider a privacy mechanism that provides a degree of protection by probabilistically masking each market segment. We establish that the resultant set of all consumer-producer utilities forms a convex polygon, characterized explicitly as a linear mapping of a certain high-dimensional convex polytope into $\mathbb{R}^2$. This characterization enables us to investigate the impact of the privacy mechanism on both producer and consumer utilities. In particular, we establish that the privacy constraint always hurts the producer by reducing both the maximum and minimum utility achievable. From the consumer's perspective, although the privacy mechanism ensures an increase in the minimum utility compared to the non-private scenario, interestingly, it may reduce the maximum utility. Finally, we demonstrate that increasing the privacy level does not necessarily intensify these effects. For instance, the maximum utility for the producer or the minimum utility for the consumer may exhibit nonmonotonic behavior in response to an increase of the privacy level.

Date: 2024-02, Revised 2024-06
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2402.08223 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2402.08223

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().