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Conditioning Prices on Purchase History

Authors:

Alessandro Acquisti,

Hal R. VarianAuthors Info & Claims

Marketing Science, Volume 24, Issue 3

Pages 367 - 381

Published: 01 August 2005 Publication History

Abstract

The rapid advance in information technology now makes it feasible for sellers to condition their price offers on consumers' prior purchase behavior. In this paper we examine when it is profitable to engage in this form of price discrimination when consumers can adopt strategies to protect their privacy.

Our baseline model involves rational consumers with constant valuations for the goods being sold and a monopoly merchant who can commit to a pricing policy. Applying results from the prior literature, we show that although it is feasible to price so as to distinguish high-value and low-value consumers, the merchant will never find it optimal to do so.

We then consider various generalizations of this model, such as allowing the seller to offer enhanced services to previous customers, making the merchant unable to commit to a pricing policy, and allowing competition in the marketplace. In these cases we show that sellers will, in general, find it profitable to condition prices on purchase history.

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Li XWang XNault B(2024)Is Personalized Pricing Profitable When Firms Can Differentiate?Management Science10.1287/mnsc.2021.0274070:7(4184-4199)Online publication date: 1-Jul-2024
https://dl.acm.org/doi/10.1287/mnsc.2021.02740
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cover image Marketing Science

Marketing Science Volume 24, Issue 3

August 2005

219 pages

ISSN:1526-548X

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INFORMS

Linthicum, MD, United States

Publication History

Published: 01 August 2005

Received: 01 May 2003

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Cited By

Bimpikis KMorgenstern ISaban D(2024)Data Tracking Under CompetitionOperations Research10.1287/opre.2023.248972:2(514-532)Online publication date: 1-Mar-2024
https://dl.acm.org/doi/10.1287/opre.2023.2489
Cao HMa LNing ZSun B(2024)How Does Competition Affect Exploration vs. Exploitation? A Tale of Two Recommendation AlgorithmsManagement Science10.1287/mnsc.2023.472270:2(1029-1051)Online publication date: 1-Feb-2024
https://dl.acm.org/doi/10.1287/mnsc.2023.4722
Li XWang XNault B(2024)Is Personalized Pricing Profitable When Firms Can Differentiate?Management Science10.1287/mnsc.2021.0274070:7(4184-4199)Online publication date: 1-Jul-2024
https://dl.acm.org/doi/10.1287/mnsc.2021.02740
Miklós-Thal JGoldfarb AHaviv ATucker C(2024)FrontiersMarketing Science10.1287/mksc.2023.061243:4(697-708)Online publication date: 9-May-2024
https://dl.acm.org/doi/10.1287/mksc.2023.0612
Turjeman DFeinberg F(2024)When the Data Are OutMarketing Science10.1287/mksc.2019.020843:2(440-461)Online publication date: 1-Jan-2024
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Chen WHe YBansal S(2023)Customized Dynamic Pricing When Customers Develop a Habit or SatiationOperations Research10.1287/opre.2022.241271:6(2158-2174)Online publication date: 1-Nov-2023
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Kash IKey PZoumpoulis S(2023)Optimal Pricing and Introduction Timing of Technology Upgrades in Subscription-Based ServicesOperations Research10.1287/opre.2022.236471:2(665-687)Online publication date: 1-Mar-2023
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Ke TSudhir K(2023)Privacy Rights and Data SecurityManagement Science10.1287/mnsc.2022.461469:8(4389-4412)Online publication date: 1-Aug-2023
https://dl.acm.org/doi/10.1287/mnsc.2022.4614
Laussel DVan Long NResende J(2023)Profit Effects of Consumers’ Identity ManagementManagement Science10.1287/mnsc.2022.451169:6(3602-3615)Online publication date: 1-Jun-2023
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Jullien BReisinger MRey P(2023)Personalized Pricing and Distribution StrategiesManagement Science10.1287/mnsc.2022.443769:3(1687-1702)Online publication date: 1-Mar-2023
https://dl.acm.org/doi/10.1287/mnsc.2022.4437
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