Personalized Pricing and Firm Incentives
62 Pages Posted: 15 Sep 2022 Last revised: 18 May 2024
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Personalized Pricing and Firm Incentives
Date Written: May 18, 2024
Abstract
Big data and data technology have led to the widespread adoption of personalized pricing practices. Although price personalization helps a firm extract rent from consumers, it makes prices less transparent, which can harm firm profits in contexts featuring consumer coordination. We show that alternative incentives for the firm, such as corporate social responsibility toward consumers, can facilitate a commitment to lower product prices, which helps overcome the coordination problem among consumers and increases firm profits, thus supporting the notion of “doing well by doing good.” Our analysis provides implications for regulating personalized pricing.
Keywords: Personalized pricing, network effects, price transparency, corporate social responsibility, coordination, firm incentives
JEL Classification: D11, G32, L20, M14
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