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Privacy, personalization and price discrimination

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Hidir, Sinem and Vellodi, Nikhil (2021) Privacy, personalization and price discrimination. Journal of the European Economic Association, 19 (2). pp. 1342-1363. doi:10.1093/jeea/jvaa027

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Official URL: https://doi.org/10.1093/jeea/jvaa027

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Abstract

We study a bilateral trade setting in which a buyer has private valuations over a multi-product seller’s inventory. We introduce the notion of an incentive-compatible market segmentation (IC-MS)—a market segmentation compatible with the buyer’s incentives to voluntarily reveal their preferences. Our main result is a characterization of the buyer-optimal IC-MS. It is partially revealing, comprised primarily of pooling segments wide enough to keep prices low but narrow enough to ensure trade over relevant products. We use our results to study a novel design problem in which a retail platform seeks to attract consumers by calibrating the coarseness of its search interface. Our analysis speaks directly to consumer privacy and the debate regarding product steering versus price discrimination in online retail.

Item Type: Journal Article
Subjects: H Social Sciences > HF Commerce
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Market segmentation, Price discrimination, Product management
Journal or Publication Title: Journal of the European Economic Association
Publisher: Oxford University Press
ISSN: 1542-4766
Official Date: April 2021
Dates:
DateEvent
April 2021Published
5 June 2020Available
26 March 2020Accepted
Volume: 19
Number: 2
Page Range: pp. 1342-1363
DOI: 10.1093/jeea/jvaa027
Status: Peer Reviewed
Publication Status: Published
Publisher Statement: This is a pre-copyedited, author-produced version of an article accepted for publication in Journal of the European Economic Association following peer review. The version of record Sinem Hidir, Nikhil Vellodi, Privacy, Personalization and Price Discrimination, Journal of the European Economic Association, , jvaa027, https://doi.org/10.1093/jeea/jvaa027 is available online at: https://doi.org/10.1093/jeea/jvaa027
Access rights to Published version: Restricted or Subscription Access
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