To Each Their Own: Personalized Product Offerings in Competition
研究两家竞争企业如何利用消费者偏好信号进行个性化产品定价，发现预测精度提高会先缓和后加剧价格竞争，利润呈倒U形，隐私规制可能通过放松竞争提高利润但损害消费者福利。
We study competition between two firms that personalize product offerings to consumers. Firms have private, imperfect signals of each consumer’s ideal location and offer each consumer a different product without observing the competitor’s product offering. We characterize the equilibrium personalization strategy and examine how the accuracies of firms’ signals affect equilibrium strategy, profits, and consumer welfare. A firm generally charges a higher price for a more niche product and profits more from niche consumers unless its prediction accuracy is sufficiently lower than its competitor’s. When both firms have the same industry-level prediction accuracy, an increase in accuracy initially relaxes but later intensifies price competition for niche consumers, having the opposite effect on mainstream consumers. Interestingly, equilibrium profits also have an inverse-U shape in the prediction accuracy. A higher accuracy can also decrease welfare for mainstream consumers. When firms can endogenously invest in prediction accuracy, firms have incentives to overinvest in equilibrium, resulting in a prisoner’s dilemma. Privacy regulations that reduce predictive accuracy, including industry self-regulation, could improve profits and hurt consumer welfare by relaxing price competition. Our results remain robust under consumer search. The paper also discusses what happens if firms charge uniform pricing, if consumers’ ideal locations are distributed on the Salop circle, or if firms receive common signals, highlighting price discrimination between mainstream and niche consumers as the key driver of results. This paper was accepted by Dmitri Kuksov, marketing. Funding: J. Du is grateful for financial support from the Research Grants Council of Hong Kong [Grant GRF/17501823]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2023.02540 .