Multidimensional Personalized Pricing and Market Competition

Zenan Wu is an associate professor at Peking University. His research focuses on the field of applied microeconomic theory; specifically, contest theory, insurance markets, industrial organization, and behavioral economics. His research has been published in journals, including Theoretical Economics, Journal of Economic Theory, RAND Journal of Economics, American Economic Journal: Microeconomics, Games and Economic Behavior, and Journal of Environmental Economics and Management. He received the Bachelor’s degree in Economics from Tsinghua University and Ph.D. in Economics from University of Pennsylvania.

We analyze an oligopoly market in which consumers differ in both their brand-dependent preferences (loyalty) and brand-independent preference (choosiness). Firms produce horizontally differentiated products. Firms may offer personalized price to consumers based on their loyalty and/or choosiness, depending on the regulator’s policy. We show that either fully personalized pricing---more specifically, price discrimination based on all of consumers’ information---or unidimensional price discrimination---i.e., personalized pricing based on consumers’ loyalty---may generate the maximum consumer welfare. In contrast, personalized pricing based on consumers’ choosiness always generates the most profits to firms in the equilibrium.