Consumer Privacy and the Incentives to Price-Discriminate in Online Markets

Abstract

This paper studies how product customization and consumer privacy affect a monopolist’s incentives to engage in perfect price discrimination. We consider a monopolist that faces an ex ante choice to commit to price discrimination or to a uniform price. We introduce a simple model in which a monopolist can use analytics to access consumer data to both price-discriminate and offer customized products. In turn, consumers can protect their privacy to avoid price discrimination at a cost. By committing not to price-discriminate, the firm induces consumers to not protect their data, which allows it to customize the product. It can then extract the extra value through an increased uniform price. This strategy is profitable when the value added through customization is sufficiently high. An intermediate quality of analytics gives the monopolist more incentives to set a uniform price.

Evolutionary game analysis of big data discriminatory pricing diffusion based on the supervision of relevant interest parties

“…Big data technology can accurately observe consumer behaviors so that retailers can estimate consumers' valuation of services (Acquisti & Varian, 2005; Taylor, 2004; Ulph & Vulkan, 2000). Relevant scholars have proved that consumers are usually willing to disclose some of their private information as long as they receive sufficient incentives (Acquisti & Varian, 2005; De Corniere & Montes, 2017; Hann et al, 2008). For the research of evolutionary game, scholars generally adopt the two‐party game model and the three‐party game model, for example, Zhang et al (2019) established a two‐party evolutionary game model under cap‐and‐trade regulation to study the impact of government intervention on manufacturers' decisions, compared dynamic and static carbon trading pricing strategies, and proposed more effective carbon emission reduction policies.…”