Pricing in Digital Markets
Paper Session
Sunday, Jan. 3, 2021 3:45 PM - 5:45 PM (EST)
- Chair: Alessandro Pavan, Northwestern University
Consumer Information and the Limits to Competition
Abstract
This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class of signal structures which allow pure-strategy pricing equilibria, we derive signal structures which are optimal for firms and those which are optimal for consumers. The firm-optimal signal structure amplifies the underlying product differentiation, thereby relaxing competition, while ensuring that consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal structure dampens differentiation, which intensifies competition, but induces some consumers with weak preferences between products to buy their less-preferred product. The analysis sheds light on the limits to competition when the information possessed by consumers can be designed flexibly.Voluntary Disclosure and Personalized Pricing
Abstract
A concern central to the economics of privacy is that firms may use consumer data to price discriminate. A common response is that consumers should have control over their data and the ability to choose how firms access it. Since firms draw inferences based on both the data seen as well as the consumer’s disclosure choices, the strategic implications of this proposal are unclear. We investigate whether such measures improve consumer welfare in monopolistic and competitive environments. We find that consumer control can guarantee gains for every consumer type relative to both perfect price discrimination and no personalized pricing. This result is driven by two ideas. First, consumers can use disclosure to amplify competition between firms. Second, consumers can share information that induces a seller—even a monopolist—to make price concessions. Further-more, whether consumer control improves consumer surplus depends on both the technology of disclosure and the competitiveness of the marketplace. In a competitive market, simple disclosure technologies such as “track / do-not-track” suffice for guaranteeing gains in consumer welfare. However, in a monopolistic market,welfare gains require richer forms of disclosure technology whereby consumers can decide how much information they would like to convey.Optimal Algorithmic Pricing for Interruptible Goods
Abstract
I study selling mechanisms by a monopolist for imperfectly durable, interruptible and homogeneous goods. Having the infrastructure as a service public cloud computing market as a motivating example, I show that when market conditions are not transparent and under few certain additional conditions, by offering a randomized mechanism that incorporates a risk of interruption over consumption, the seller can improve her revenue in comparison to the standard deterministic mechanism proposed by Myerson (1981). In the optimal mechanism the risk of interruption can lead to differential pricing even if the valuation/type of the buyer is a private information. I find that when this mechanism is optimal it expands trade to more types of buyers than in the optimal deterministic case making low (high) valuation buyers better (worse) off. The optimal mechanism can be implemented by simultaneously allocating the good through a posted price and an auction where buyers face the risk of interruption. Auctioning the goods can be designed so as to incorporate the risk for the winners of losing access to their service while it is still in operation. The posted price mechanism can by construction eliminate that risk. Buyers of high valuations prefer to pay a risk premium and get the service through the posted price mechanism while buyers of low valuations unable to meet the price level of the risk premium and enter the auction.Discussant(s)
Pinar Yildirim
,
University of Pennsylvania
Hanna Halaburda
,
New York University
Gonzalo Cisternas
,
Massachusetts Institute of Technology
Daniel Vincent
,
University of Maryland
JEL Classifications
- D4 - Market Structure, Pricing, and Design
- L1 - Market Structure, Firm Strategy, and Market Performance