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This paper considers and discusses the effects of personalized pricing, focusing on the issues of consumer welfare and discrimination costs. Following the framework of price discrimination theory, we can say that the firms utilizing consumer big data ultimately aim at first-degree price discrimination in the long run while we will observe first the transition to third-degree price discrimination from second-degree discrimination in the short-term reality. Such changes will cause the information rents of consumers based on information asymmetry to be transferred to the firms as profit increases. This is an issue of concern by itself. Considering
the costs of discrimination together, however, it may also cause the inefficiency in the total welfare as it increases the private incentives of discrimination. As data-utilizing technologies and industries grow, private costs of discrimination may fall while its external costs rise. Then the likelihood and the size of inefficiency will increase. So, it is necessary to consider the ways of internalizing the social costs of utilizing consumer data through consumer privacy regulation or judicial intervention.

key words: price discrimination, data, consumer welfare

Sung_Hwan Kim
Professor, Department of Economics, Ajou University

(The Korean Journal of Industrial Organization, Vol. 29(2), June, 2021)