Consumer data and price discrimination by consideration sets

Abstract

In a homogeneous product oligopoly with probabilistic consideration, identical retailers compete in prices over two periods. In period two, purchase history data enables price discrimination based on consumers’ consideration patterns. Retailers discriminate by conditioning prices on a consumer’s period one supplier. Endogenously acquired consumer information is asymmetric across firms. Price discrimination underpins complete market segmentation. Sub-markets differ in market structure and competitive pressure. In unique symmetric sequential equilibrium, retailers fine-tune period two prices in response to competitive pressure and, compared to uniform pricing, charge (on average) higher period one prices and make larger expected profits, associated with lower expected consumer surplus.