Price Customization and Targeting in Matching Markets

Hosted by Wharton's Business Economics and Public Policy Department's Applied Economics Workshop

More on Alessandro Pavan

ABSTRACT: We investigate the effects on targeting and welfare of uniform pricing (be it mandated, due to privacy regulations, or the result of the transition from a centralized to a decentralized market structure). We build a model of many-to-many matching in which preferences are both vertically and horizontally differentiated. In the absence of uniform-price obligations, platforms maximize profits through price customization, using information on structural elasticities. We show how uniform pricing may either increase or decrease targeting, and identify conditions under which it is beneficial to consumer surplus. The analysis has implications for online retailing, ad exchanges, and media markets.