Discussion paper
DP18756 Manipulative consumers
We study optimal monopoly pricing with evasive consumers. The monopolist uses consumer data to estimate demand and menu pricing to optimally screen the residual uncertainty about consumers' preferences. Third degree price discrimination encourages data-conscious consumers to manipulate their observable attributes (at a cost). This reduces the precision of demand estimation, sometimes rendering the consumer data useless. We derive the monopolist's gains from using data and characterize the optimal investigation strategy. Large number of observable consumer attributes results in small overall value of data. Randomly restricting monopolist's access to consumer data increases profit.
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