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Discreet Personalized Pricing

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  • Benjamin R. Shiller

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 such pricing may unintentionally arise through algorithmic pricing. I examine outcomes in four contexts: one empirical and three hypothetical distributions of consumer valuations. I find that this strategy is most intense and raises profits most for medium popularity products. Furthermore, improvements in the precision of individual-level demand estimates raise 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.

Suggested Citation

  • Benjamin R. Shiller, 2022. "Discreet Personalized Pricing," CESifo Working Paper Series 10025, CESifo.
    • Handle: RePEc:ces:ceswps:_10025
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10025.pdf
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    References listed on IDEAS

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    Cited by:

    1. Qiuyu Lu & Noriaki Matsushima, 2023. "Personalized pricing when consumers can purchase multiple items," ISER Discussion Paper 1192, Institute of Social and Economic Research, Osaka University.

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    More about this item

    Keywords

    personalized pricing; algorithmic pricing; price discrimination; targeted pricing; behavioural pricing; dynamic pricing; sticky pricing;
    All these keywords.

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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