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Third-Degree Price Discrimination in the Age of Big Data

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  • Charlson, G.

Abstract

A platform holds information on the demographics of its users and wants maximise total surplus. The data generates a probability over which of two products a buyer prefers, with different data segmentations being more or less informative. The platform reveals segmentations of the data to two firms, one popular and one niche, preferring to reveal no information than completely revealing the consumer's type for certain. The platform can improve profits by revealing to both firms a segmentation where the niche firm is relatively popular, but still less popular than the other firm, potentially doing even better by revealing information asymmetrically. The platform has an incentive to provide more granular data in markets in which the niche firm is particularly unpopular or in which broad demographic categories are not particularly revelatory of type, suggesting that the profit associated with big data techniques differs depending on market characteristics.

Suggested Citation

  • Charlson, G., 2021. "Third-Degree Price Discrimination in the Age of Big Data," Janeway Institute Working Papers 2104, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camjip:2104
    Note: gc556
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Strategic interaction; network games; interventions; industrial organisation; platforms; hypergraphs;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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