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Purchase history and product personalization

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  • Laura Doval
  • Vasiliki Skreta

Abstract

Product personalization opens the door to price discrimination. A rich product line allows firms to better tailor products to consumers' tastes, but the mere choice of a product carries valuable information about consumers that can be leveraged for price discrimination. We study this trade-off in an upstream-downstream model, where a consumer buys a good of variable quality upstream, followed by an indivisible good downstream. The downstream firm's use of the consumer's purchase history for price discrimination introduces a novel distortion: The upstream firm offers a subset of the products that it would offer if, instead, it could jointly design its product line and downstream pricing. By controlling the degree of product personalization the upstream firm curbs ratcheting forces that result from the consumer facing downstream price discrimination.

Suggested Citation

  • Laura Doval & Vasiliki Skreta, 2021. "Purchase history and product personalization," Papers 2103.11504, arXiv.org, revised Jul 2023.
    • Handle: RePEc:arx:papers:2103.11504
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    Cited by:

    1. Laura Doval & Vasiliki Skreta, 2022. "Mechanism Design With Limited Commitment," Econometrica, Econometric Society, vol. 90(4), pages 1463-1500, July.

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    More about this item

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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