DP12936 Price Customization and Targeting in Matching Markets

Author(s): Renato Gomes, Alessandro Pavan
Publication Date: May 2018
Date Revised: March 2019
Keyword(s): asymmetric information, incentives, Many-to-many matching, platforms, price discrimination
JEL(s): D82
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12936

We investigate the effects on targeting and welfare of uniform pricing (be it explicitly mandated, induced by 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 local 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