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Strategic anonymity and behavior-based pricing

Author

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  • Stefano Colombo
  • Paolo G. Garella
  • Noriaki Matsushima

Abstract

We analyze behavior-based price discrimination (BBPD) where consumers choose between being identified (e.g., by opting in) or remaining anonymous, as opposed to mandatory opt-in. Opting in provides consumers with benefits but also enables firms to apply history-dependent pricing. Under voluntary opt-in, market segmentation becomes more fragmented compared to standard BBPD. Consumer surplus and social welfare are higher with voluntary opt-in, while firm profits increase under mandatory opt-in. However, if consumers heavily discount the future and firms are forward-looking, these results may reverse entirely. Our result implies that policymakers can ensure that consumers retain control over their data along with encouraging them to adopt a more forward-looking perspective.
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Suggested Citation

  • Stefano Colombo & Paolo G. Garella & Noriaki Matsushima, 2023. "Strategic anonymity and behavior-based pricing," ISER Discussion Paper 1219, Institute of Social and Economic Research, The University of Osaka.
    • Handle: RePEc:dpr:wpaper:1219
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    References listed on IDEAS

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