Should We Fear Personalized Pricing?
- Author(s):
- John M. Yun
- Posted:
- 07-2025
- Law & Economics #:
- 25-10
- Availability:
- Full text (most recent) on SSRN
ABSTRACT:
The practice of personalized pricing involves using information about a consumer to more accurately estimate an individual’s willingness-to-pay for a product to calibrate pricing to that individual. If the practice grows, what does this imply for consumer welfare—particularly for digital markets where there is an abundance of user data? While some consumers may end up enjoying lower prices and having greater access to markets, other consumers will likely end up paying higher prices relative to the counterfactual, that is, a world without personalized pricing but likely some other forms of price discrimination. Nonetheless, it is unlikely that all consumers are made worse off relative to the counterfactual. Additionally, there are reasons that mitigate the concern that the practice of personalize pricing will grow. First, there could be competitive pressure to not engage in the practice—as firms that explicitly avoid personalized pricing will have a competitive advantage in the eyes of consumers. Relatedly, firms that do engage in personalized pricing will likely be stigmatized in the market, which creates a strong disincentive to widely adopt the practice.