Personalized pricing versus history-based pricing: implications for privacy policy

- Profits are invariant to whether personalized or history-based pricing is applied.
- Personalized pricing is harmful for consumer surplus and total welfare.
- Personalized pricing leads to a higher proportion of inefficient switching.
- With endogenous customer relationships consumers benefit from privacy protection.

We compare personalized and history-based pricing and show that personalized pricing harms consumer surplus and total welfare when evaluated over a two-period horizon. The model is characterized by two key features: (1) the discounted two-period profits are invariant to whether personalized or history-based pricing is applied because higher period-2 profits with personalized pricing are offset by lower period-1 profits. (2) Consumer mobility is invariant to whether history-based or personalized pricing is applied, but personalized pricing leads to a higher proportion of inefficient switching, and a lower proportion of efficient switching.