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Personalized pricing with a price sensitive demand

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  • Esteves, Rosa-Branca
  • Shuai, Jie

Abstract

This paper assesses the profit and welfare effects of firms’ ability to charge personalized prices in markets where consumer demand is sensitive to price changes. In a mill pricing model, regardless of demand elasticity, personalized pricing (PP) raises consumer surplus at the expense of profits. In contrast, in a delivered pricing model, if demand is sufficiently elastic, PP boosts profits at the expense of consumer surplus and overall welfare. Moving from PP in a mill to a delivered pricing model, benefits industry profits and harms consumer surplus and welfare.

Suggested Citation

  • Esteves, Rosa-Branca & Shuai, Jie, 2022. "Personalized pricing with a price sensitive demand," Economics Letters, Elsevier, vol. 213(C).
    • Handle: RePEc:eee:ecolet:v:213:y:2022:i:c:s0165176522000672
    DOI: 10.1016/j.econlet.2022.110396
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    References listed on IDEAS

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    Cited by:

    1. Esteves, Rosa-Branca, 2022. "Can personalized pricing be a winning strategy in oligopolistic markets with heterogeneous demand customers? Yes, it can," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    2. Qiuyu Lu & Noriaki Matsushima, 2024. "Personalized Pricing When Consumers Can Purchase Multiple Items," Journal of Industrial Economics, Wiley Blackwell, vol. 72(4), pages 1507-1524, December.
    3. Noriaki Matsushima & Mark J. Tremblay, 2024. "Network compatibility and incumbent pricing regimes," ISER Discussion Paper 1265, Institute of Social and Economic Research, Osaka University.

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