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Good Data and Bad Data: The Welfare Effects of Price Discrimination

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  • Maryam Farboodi
  • Nima Haghpanah
  • Ali Shourideh

Abstract

We study how a monopolist’s use of consumer data for price discrimination affects welfare. To answer this question, we develop a model of market segmentation subject to residual uncertainty. We fully characterize when data usage monotonically increases or decreases welfare or when the effect is non-monotone. The characterization reduces the problem to one with only two demand curves, and gives a condition for the two-demand-curves case that highlights that information affects welfare in three distinct ways. In the non-monotone case, we provide tight bounds on the welfare effects of information and identify the best local direction for providing additional information.

Suggested Citation

  • Maryam Farboodi & Nima Haghpanah & Ali Shourideh, 2025. "Good Data and Bad Data: The Welfare Effects of Price Discrimination," NBER Working Papers 34514, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34514
    Note: EFG IO
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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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