IDEAS home Printed from https://ideas.repec.org/p/cam/camdae/2159.html
   My bibliography  Save this paper

Third-Degree Price Discrimination in the Age of Big Data

Author

Listed:
  • 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," Cambridge Working Papers in Economics 2159, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2159
    Note: gc556
    as

    Download full text from publisher

    File URL: https://www.econ.cam.ac.uk/sites/default/files/publication-cwpe-pdfs/cwpe2159.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Esteves, Rosa-Branca & Cerqueira, Sofia, 2017. "Behavior-based pricing under imperfectly informed consumers," Information Economics and Policy, Elsevier, vol. 40(C), pages 60-70.
    2. Belleflamme, Paul & Vergote, Wouter, 2016. "Monopoly price discrimination and privacy: The hidden cost of hiding," Economics Letters, Elsevier, vol. 149(C), pages 141-144.
    3. Anne-Katrin Roesler & Balázs Szentes, 2017. "Buyer-Optimal Learning and Monopoly Pricing," American Economic Review, American Economic Association, vol. 107(7), pages 2072-2080, July.
    4. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, vol. 71(1), pages 260-288, October.
    5. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    6. Dziubiński, Marcin Konrad & Goyal, Sanjeev, 2017. "How do you defend a network?," Theoretical Economics, Econometric Society, vol. 12(1), January.
    7. Emir Kamenica & Matthew Gentzkow, 2011. "Bayesian Persuasion," American Economic Review, American Economic Association, vol. 101(6), pages 2590-2615, October.
    8. Brent Neiman & Joseph Vavra, 2023. "The Rise of Niche Consumption," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(3), pages 224-264, July.
    9. David Bounie & Antoine Dubus & Patrick Waelbroeck, 2021. "Selling strategic information in digital competitive markets," RAND Journal of Economics, RAND Corporation, vol. 52(2), pages 283-313, June.
    10. Dirk Bergemann & Stephen Morris, 2016. "Information Design, Bayesian Persuasion, and Bayes Correlated Equilibrium," American Economic Review, American Economic Association, vol. 106(5), pages 586-591, May.
    11. Chen, J. & Elliott, M. & Koh, A., 2020. "Capability Accumulation and Conglomeratization in the Information Age," Cambridge Working Papers in Economics 2069, Faculty of Economics, University of Cambridge.
    12. Mark Armstrong & Jidong Zhou, 2022. "Consumer Information and the Limits to Competition," American Economic Review, American Economic Association, vol. 112(2), pages 534-577, February.
    13. van den Nouweland, Anne & Borm, Peter & Tijs, Stef, 1992. "Allocation Rules for Hypergraph Communication Situations," International Journal of Game Theory, Springer;Game Theory Society, vol. 20(3), pages 255-268.
    14. Bester, Helmut & Petrakis, Emmanuel, 1996. "Coupons and oligopolistic price discrimination," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 227-242.
    15. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    16. Slikker, Marco & Dutta, Bhaskar & van den Nouweland, Anne & Tijs, Stef, 2000. "Potential maximizers and network formation," Mathematical Social Sciences, Elsevier, vol. 39(1), pages 55-70, January.
    17. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-137, March.
    18. Charlson, G., 2020. "Searching for Results: Optimal Platform Design in a Network Setting," Cambridge Working Papers in Economics 20118, Faculty of Economics, University of Cambridge.
    19. Esteves, Rosa-Branca & Resende, Joana, 2019. "Personalized pricing and advertising: Who are the winners?," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 239-282.
    20. S Nageeb Ali & Greg Lewis & Shoshana Vasserman, 2023. "Voluntary Disclosure and Personalized Pricing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(2), pages 538-571.
    21. Vives, Xavier, 1988. "Aggregation of Information in Large Cournot Markets," Econometrica, Econometric Society, vol. 56(4), pages 851-876, July.
    22. William Novshek & Hugo Sonnenschein, 1982. "Fulfilled Expectations Cournot Duopoly with Information Acquisition and Release," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 214-218, Spring.
    23. Grazia Cecere & Fabrice Le Guel & Matthieu Manant & Nicolas Soulié, 2017. "The Economics of Privacy," Grenoble Ecole de Management (Post-Print) hal-01557755, HAL.
    24. Alessandro Acquisti, 2014. "Inducing Customers to Try New Goods," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 131-146, March.
    25. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June.
    26. Mark Armstrong, 2005. "Recent Developments in the Economics of Price Discrimination," Industrial Organization 0511004, University Library of Munich, Germany.
    27. Grazia Cecere & Fabrice Le Guel & Matthieu Manant & Nicolas Soulié, 2017. "The economics of privacy," Post-Print hal-01557755, HAL.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Charlson, G., 2021. "Third-Degree Price Discrimination in the Age of Big Data," Janeway Institute Working Papers 2104, Faculty of Economics, University of Cambridge.
    2. Flavio Pino, 2022. "The microeconomics of data – a survey," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 635-665, September.
    3. Elliott, M. & Galeotti., A. & Koh., A. & Li, W., 2021. "Market Segmentation Through Information," Janeway Institute Working Papers 2114, Faculty of Economics, University of Cambridge.
    4. Carroni, Elias & Ferrari, Luca & Righi, Simone, 2019. "The price of discovering your needs online," Journal of Economic Behavior & Organization, Elsevier, vol. 164(C), pages 317-330.
    5. Choe, Chongwoo & Matsushima, Noriaki & Tremblay, Mark J., 2022. "Behavior-based personalized pricing: When firms can share customer information," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    6. Rosa-Branca Esteves, 2021. "Can personalized pricing be a winning strategy in oligopolistic markets with heterogeneous demand customers? Yes, it can," NIPE Working Papers 08/2021, NIPE - Universidade do Minho.
    7. Shuaicheng Liu, 2024. "Privacy regulation in asymmetric environments," Journal of Regulatory Economics, Springer, vol. 66(2), pages 157-173, December.
    8. Vladimir Asriyan & Dana Foarta & Victoria Vanasco, 2023. "The Good, the Bad, and the Complex: Product Design with Imperfect Information," American Economic Journal: Microeconomics, American Economic Association, vol. 15(2), pages 187-226, May.
    9. Yuncheol Jeong & Masayoshi Maruyama, 2009. "Commitment to a strategy of uniform pricing in a two-period duopoly with switching costs," Journal of Economics, Springer, vol. 98(1), pages 45-66, September.
    10. Jeong, Yuncheol & Maruyama, Masayoshi, 2018. "Positioning and pricing strategies in a market with switching costs and staying costs," Information Economics and Policy, Elsevier, vol. 44(C), pages 47-57.
    11. Zhijun Chen & Chongwoo Choe & Noriaki Matsushima, 2018. "Competitive Personalized Pricing," ISER Discussion Paper 1023, Institute of Social and Economic Research, The University of Osaka.
    12. Navarra, Federico & Pino, Flavio & Sandrini, Luca, 2024. "Mandated data-sharing in hybrid marketplaces," ZEW Discussion Papers 24-051, ZEW - Leibniz Centre for European Economic Research.
    13. Liu, Qihong & Serfes, Konstantinos, 2005. "Imperfect price discrimination in a vertical differentiation model," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 341-354, June.
    14. Morlok, Tina & Matt, Christian & Hess, Thomas, 2017. "Privatheitsforschung in den Wirtschaftswissenschaften: Entwicklung, Stand und Perspektiven," Working Papers 1/2017, University of Munich, Munich School of Management, Institute for Information Systems and New Media.
    15. Esteves, Rosa-Branca, 2010. "Pricing with customer recognition," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 669-681, November.
    16. Zhijun Chen & Chongwoo Choe & Noriaki Matsushima, 2020. "Competitive Personalized Pricing," Management Science, INFORMS, vol. 66(9), pages 4003-4023, September.
    17. Sumit Shrivastav, 2023. "Profitability of behavior-based price discrimination," Marketing Letters, Springer, vol. 34(4), pages 535-547, December.
    18. Mark Armstrong & Jidong Zhou, 2022. "Consumer Information and the Limits to Competition," American Economic Review, American Economic Association, vol. 112(2), pages 534-577, February.
    19. Stefano Colombo & Paolo G. Garella & Noriaki Matsushima, 2023. "Strategic anonymity and behavior-based pricing," ISER Discussion Paper 1219r, Institute of Social and Economic Research, The University of Osaka, revised Jan 2025.
    20. Johannes Johnen, 2020. "Dynamic competition in deceptive markets," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 375-401, June.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cam:camdae:2159. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jake Dyer (email available below). General contact details of provider: https://www.econ.cam.ac.uk/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.