First Degree Price Discrimination Using Big Data
AbstractSecond and 3rd degree price discrimination (PD) receive far more attention than 1st degree PD, i.e. person-speci?c pricing, because the latter requires previously unobtainable information on individuals’ willingness to pay. I show modern web behavior data reasonably predict Net?ix subscription, far outperforming data available in the past. I then present a model to estimate demand and simulate outcomes had 1st degree PD been implemented. The model is structural, derived from canonical theory models, but resembles an ordered Probit, allowing methods for handling massive datasets. Simulations show using demographics alone to tailor prices raises pro?ts by 0.14%. Including web browsing data increases pro?ts by much more, 1.4%, increasingly the appeal of tailored pricing, and resulting in some consumers paying twice as much as others do for the exact same product.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Brandeis University, Department of Economics and International Businesss School in its series Working Papers with number 58.
Length: 31 pages
Date of creation: Aug 2013
Date of revision: Sep 2013
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-31 (All new papers)
- NEP-COM-2013-08-31 (Industrial Competition)
- NEP-MKT-2013-08-31 (Marketing)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin Feldstein, 1997.
"College Scholarship Rules and Private Saving,"
NBER Working Papers
4032, National Bureau of Economic Research, Inc.
- Crawford, Gregory S & Shum, Matthew, 2007.
"Monopoly Quality Degradation and Regulation in Cable Television,"
Journal of Law and Economics,
University of Chicago Press, vol. 50(1), pages 181-219, February.
- Crawford, Gregory & Shum, Matthew, 2005. "Monopoly Quality Degradation and Regulation in Cable Television," Working paper 169, Regulation2point0.
- Alan L. Montgomery & Shibo Li & Kannan Srinivasan & John C. Liechty, 2004. "Modeling Online Browsing and Path Analysis Using Clickstream Data," Marketing Science, INFORMS, vol. 23(4), pages 579-595, November.
- Nair, Harikesh, S., 2006.
"Intertemporal Price Discrimination with Forward-Looking Consumers: Application to the US Market for Console Video-Games,"
1947, Stanford University, Graduate School of Business.
- Harikesh Nair, 2007. "Intertemporal price discrimination with forward-looking consumers: Application to the US market for console video-games," Quantitative Marketing and Economics, Springer, vol. 5(3), pages 239-292, September.
- Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
- Wendy W. Moe & Peter S. Fader, 2004. "Dynamic Conversion Behavior at E-Commerce Sites," Management Science, INFORMS, vol. 50(3), pages 326-335, March.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Graddy, Kathryn & Hall, George, 2011.
"A dynamic model of price discrimination and inventory management at the Fulton Fish Market,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 80(1), pages 6-19.
- Kathryn Graddy & George Hall, 2009. "A Dynamic Model of Price Discrimination and Inventory Management at the Fulton Fish Market," NBER Working Papers 15019, National Bureau of Economic Research, Inc.
- Graddy, Kathryn & Hall, George, 2009. "A Dynamic Model of Price Discrimination and Inventory Management at the Fulton Fish Market," CEPR Discussion Papers 7315, C.E.P.R. Discussion Papers.
- Ben Shiller & Joel Waldfogel, 2011. "Music for a Song: An Empirical Look at Uniform Pricing and Its Alternatives," Journal of Industrial Economics, Wiley Blackwell, vol. 59(4), pages 630-660, December.
- Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2011. "Bundle-Size Pricing as an Approximation to Mixed Bundling," American Economic Review, American Economic Association, vol. 101(1), pages 263-303, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Robitaille).
If references are entirely missing, you can add them using this form.