The Welfare Effects of Behavior-based Price Discrimination in E-commerce

You are invited to the Economics Department seminar series, which continues with its third talk this Friday, April 12 from 11:00am-12:00pm in SSPA-204. Our speaker will be Francesco Gabriele who will present a paper entitled “The Welfare Effects of Behavior-based Price Discrimination in E-commerce” (flyer attached).

Francesco is a PhD Candidate in the Department of Economics at the University of Southern California. His research interests focus on Empirical Industrial Organization with an emphasis on Digital Economics and Quantitative Marketing. To explore these topics, Francesco generally uses discrete-continuous choice models, causal inference and nonparametric estimation techniques.

Francesco’s talk will delve into the effects of price discriminatory practices by online businesses on profits and consumer welfare. The price discrimination is based on consumers’ shopping habits. He finds that such practices are beneficial for company profits and consumer welfare when compared to a uniformed pricing system. Please see the abstract below for more details.

“E-commerce retailers have the power to price discriminate based on users’ online past purchase behavior. This paper develops a structural model of consumer demand and a pricing policy model to quantify the welfare effects of behavior-based price discrimination (BBPD). Using data from a randomized controlled experiment on a cosmetics e-commerce site, the structural estimation reveals elastic demand to price discount treatments. With nonparametric estimation via machine learning, the counterfactual analysis tests different pricing algorithms and shows that personalized price discrimination increases e-commerce profit by 24% and consumer surplus by 4%, relative to uniform pricing. Exploiting past purchase history is profitable for the monopolistic e-commerce: BBPD complements targeting discounts by generating an additional 11% gain in producer surplus without harming loyal customers. This paper contributes to the current public policy debate about pricing strategies in digital markets as the welfare analysis has implications for privacy policy.”

We look forward to seeing you there for what promises to be an interesting and informative presentation! More information concerning this and other presentations for the semester can be found on the Economics Department website (https://cla.csulb.edu/departments/economics/seminar-series/).