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Personalized Pricing with Targeted Advertising: Who are the Winners?

Rosa Brana Esteves () and Joana Resende ()
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Rosa Brana Esteves: Department of Economics/NIPE, University of Minho, http://www.eeg.uminho.pt
Joana Resende: University of Porto (FEP)

No 02/2017, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: This paper investigates who wins and who loses when firms depart from a mass advertising/uniform pricing strategy (benchmark model) to a targeted advertising/price discrimination one. We characterize the equilibrium outcomes in both settings. Then, we address the competitive and welfare effects of personalized pricing with targeted advertising by comparing the results obtained under this business strategy to the ones arising under the mass strategy. We show that all segment consumers are expected to pay higher average prices under the personalized advertising/pricing strategy. We also show that the personalized strategy might be a winning strategy for firms. The overall welfare effects of the personalized strategy are ambiguous. However, even when the personalized strategy boosts overall welfare, consumers might all be worse-off. Thus the paper gives support to concerns that have been raised regarding the firms' ability to adopt personalized strategies to boost protfis at the expense of consumers.

Date: 2017
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