Working Paper: CEPR ID: DP15729
Authors: Eeva Mauring
Abstract: This paper theoretically studies price discrimination based on search costs. "Shoppers" have a zero and "nonshoppers" a positive search cost. A consumer faces a nondiscriminatory "common" price with some probability, or a discriminatory price. In equilibrium, firms mix over the common and the shoppers' discriminatory prices, but set a singleton nonshoppers' discriminatory price. Consumer welfare increases if price discrimination is restricted enough. An individual firm's profit can increase in the number of firms. These results have important implications for regulations that limit the tracking of consumers (e.g., EU's GDPR, California's CCPA) and for evaluating competition online.
Keywords: cookies; consumer tracking; price discrimination; GDPR; online markets; imperfect competition; sequential search
JEL Codes: D83; D43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Regulations (like GDPR and CCPA) tighten (K24) | probability of price discrimination decreases (L11) |
| probability of price discrimination decreases (L11) | consumer welfare increases (D69) |
| Price discrimination increases (D40) | consumer welfare decreases (D69) |
| Price discrimination is restricted sufficiently (L42) | consumer welfare increases (D69) |
| Number of firms in the market increases (L11) | individual firm's profit can increase (D21) |
| Increased competition (more firms) (L11) | firms shift focus from price-sensitive consumers to price-insensitive consumers (L11) |
| firms shift focus from price-sensitive consumers to price-insensitive consumers (L11) | prices for price-insensitive consumers increase (L11) |
| Higher prices for price-insensitive consumers (D49) | overall consumer welfare may be harmed (F61) |