Personalized prices in a delivered pricing model with a price sensitive demand

Abstract

This paper provides a first assessment of the profit and welfare effects of firms’ ability to charge personalized prices where consumer demand is sensitive to price changes. In a mill pricing model, regardless of demand elasticity, personalized priicing (PP) raises consumer surplus at the expense of profits. In contrast, in a delivered pricing model, if demand is sufficiently elastic, PP boosts profits at the expense of consumer surplus and overall welfare. Moving from PP in a mill to a delivery pricing model, benefits industry profits and harms consumer surplus and welfare