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Consumer Search with and without Tracking

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  • Marcel Preuss

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Abstract

In this paper, I develop a tractable framework with sequential consumer search to address the effect of tracking on market outcomes. Tracking search histories is informative about consumers’ valuations because different consumer types have different stopping probabilities. With tracking, the unique equilibrium price path is increasing whereas without tracking, an average uniform price prevails. Welfare effects largely depend on how tracking affects consumers’ search persistence. For intermediate search costs, tracking based price discrimination exacerbates the holdup problem and leads to inefficiently low search persistence. For high search costs instead, tracking prevents a market breakdown as low prices conditional on short search histories secure consumers a positive surplus from search. Tracking prevails endogenously when consumers can dynamically opt out from tracking. This holds since disclosing their search history is always individually rational for consumers, irrespective of the overall effect on consumer surplus.

Suggested Citation

  • Marcel Preuss, 2018. "Consumer Search with and without Tracking," CRC TR 224 Discussion Paper Series crctr224_2018_021, University of Bonn and University of Mannheim, Germany.
  • Handle: RePEc:bon:boncrc:crctr224_2018_021
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    File URL: https://www.crctr224.de/en/research-output/discussion-papers/discussion-papers#DP21
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    More about this item

    Keywords

    consumer search; privacy; dynamic price discrimination;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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