Discreet Personalized Pricing

Benjamin Shiller
Authors registered in the RePEc Author Service: Dennis Guignet

No 133, Working Papers from Brandeis University, Department of Economics and International Business School

Abstract: Emerging tracking data allow precise predictions of individuals' reservation values. However, firms are reluctant to conspicuously implement personalized pricing because of concerns about consumer and regulatory reprisals. This paper proposes and applies a method which disguises personalized pricing as dynamic pricing. Specifically, a firm can sometimes tailor the ''posted'' price for the arriving consumer but privately commits to change price infrequently. Note this personalized pricing strategy should arise---possibly unintentionally---through algorithmic pricing when some employed variables reflect characteristics of the arriving consumer. I examine outcomes in four contexts: one empirical and three hypothetical distributions of consumer valuations. While one may expect this strategy to be most profitable for low popularity items, I find, counterintuitively, that this strategy raises profits most for medium popularity products. Moreover, typically observable measures of price discrimination suggest it is most intense for these products. Furthermore, improvements in the precision of individual-level demand estimates raise both the popularity-level where absolute profit gains peak and the range of popularities this strategy can be profitably applied to. I conclude that this is an auspicious strategy for online platforms, if not already secretly in use.

Pages: 33 pages
Date: 2022-06
New Economics Papers: this item is included in nep-ure
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