Abstract

Product personalization opens the door to price discrimination. A rich prod-uct line allows firms to be‚er tailor products to consumers’ tastes, but the merechoice of a product carries valuable information about consumers that can beleveraged for price discrimination. We study this trade-o€ in an upstream -downstream model, where a consumer buys a good of variable quality upstream,followed by an indivisible good downstream. The downstream firm’s use of theconsumer’s purchase history for price discrimination introduces a novel distor-tion: The upstream firm o€ers a subset of the products that it would o€er if,instead, it could jointly design its product line and downstream pricing. By con-trolling the degree of product personalization the upstream firm curbs ratchetingforces that result from the consumer facing downstream price discrimination. Joint work with Vasiliki Skreta.

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