DP15729 Search and Price Discrimination Online

This paper theoretically studies price discrimination based on search costs. "Shoppers" have a zero and "nonshoppers" a positive search cost. A consumer faces a nondiscriminatory "common" price with some probability, or a discriminatory price. In equilibrium, firms mix over the common and the shoppers' discriminatory prices, but set a singleton nonshoppers' discriminatory price. Less likely price discrimination mostly benefits consumers. An individual firm's profit can increase in the number of firms. These results have important implications for regulations that limit the tracking of consumers (e.g., EU's GDPR, California's CCPA) and for evaluating competition online based on the number of firms.