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Consumer Scores and Price Discrimination

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Abstract

The consumer suffers because she buys less (with the loss represented by the red area). And while not depicted, she also suffers from future price discrimination due to information about her willingness to pay (that is, the intercept of her demand function) getting transmitted to Firm 2. However, Firm 1 is forced to lower its price (P’ in the figure) after the strategic demand reduction occurs. If the consumer has high willingness to pay, the benefit of this discount applied to many units is such that she wants to be tracked (the blue area—a benefit—grows as the intercept of demand increases).

Suggested Citation

  • Alessandro Bonatti & Gonzalo Cisternas, 2022. "Consumer Scores and Price Discrimination," Liberty Street Economics 20220711, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:94451
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    File URL: https://libertystreeteconomics.newyorkfed.org/2022/07/consumer-scores-and-price-discrimination/
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    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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