Personalized princing with targeted advertising : who are the winners?

Abstract

This paper investigates who wins and who loses when rms depart from a mass advertising/uniform pricing strategy (benchmark model) to a targeted advertising/price discrimination one. We characterize the equilibrium outcomes in both settings. Then, we address the competitive and welfare e⁄ects of personalized pricing with targeted advertising by comparing the results obtained under this business strategy to the ones arising under the mass strategy. We show that all segment consumers are expected to pay higher average prices under the personalized advertising/pricing strategy. We also show that the personalized strategy might be a winning strategy for rms. The overall welfare e⁄ects of the personalized strategy are ambiguous. However, even when the personalized strategy boosts overall welfare, consumers might all be worse-o⁄. Thus the paper gives support to concerns that have been raised regarding the rmsability to adopt personalized strategies to boost prots at the expense of consumers.