How Does Consumer Privacy Affect Personalized Pricing? Analysis Based on Intertemporal Dynamic Game Model

Abstract

With the rapid development of e-commerce and big data technology, firms can increase profits by implementing personalized pricing for specific consumers. However, this is affected by the externality of consumer privacy. To address this problem, this study establishes an intertemporal dynamic game model. Switching costs, firms’ personalized pricing orientation costs, and consumer privacy costs are then introduced into the model, and the effect of consumer privacy on personalized pricing is analyzed. The results show that improving firms’ pricing accuracy will aggravate market price competition, reduce firms’ profits, and improve consumer surplus. Consumer switching costs make it impossible for a firm to poach the loyal consumers of a rival firm through unified pricing, but poaching can also be achieved through group pricing. However, if the pricing accuracy of both firms is improved through personalization, poaching will not occur. Switching costs enhance the effect of improved pricing accuracy on the profit loss of both firms. Firms’ personalized pricing orientation costs and consumer privacy costs enhance the effect of personalized pricing strategies. Our research provides decision-making reference for enterprise pricing strategy.