Consumer Search With and Without Tracking

Marcel Preuss ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: In this paper, I develop a tractable framework with sequential consumer search to address the effect of tracking on market outcomes. Tracking search histories is informative about consumers’ valuations because different consumer types have different stopping probabilities. With tracking, the unique equilibrium price path is increasing whereas without tracking, an average uniform price prevails. Welfare effects largely depend on how tracking affects consumers’ search persistence. For intermediate search costs, tracking based price discrimination exacerbates the holdup problem and leads to inefficiently low search persistence. For high search costs instead, tracking prevents a market breakdown as low prices conditional on short search histories secure consumers a positive surplus from search. Tracking prevails endogenously when consumers can dynamically opt out from tracking. This holds since disclosing their search history is always individually rational for consumers, irrespective of the overall effect on consumer surplus.

Keywords: consumer search; privacy; dynamic price discrimination (search for similar items in EconPapers)
JEL-codes: D11 D18 D83 L13 L86 (search for similar items in EconPapers)
Pages: 55
Date: 2018-05
New Economics Papers: this item is included in nep-com, nep-ict and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2018_021

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