Jentzsch, N.Welfare and distribution effects of personalized prices and products

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Nicola Jentzsch

Release date:

Friedrich Ebert Foundation, WISO-Diskurs 2017/06

The economic perspective of personalization is only one of many, as there are also legal, consumer or social policy aspects. Overall, however, it can be assumed that the economic impact of personalization with digitalization is becoming increasingly evident, as more and more goods, services and prices are being personalized in the future. Firstly, the basic principles of personalization are to be explained, including their different phases in the business process and their different forms of combination (e.g. personalized prices and standard products, personalized products and standard prices). The variants of price discrimination of the first, second and third degree are also explained. Potential benefits as well as potential costs of personalization are also presented.

These chapters are followed by a discussion of the distribution and welfare effects of the personalization of prices and products. First, the effects of the pre-personalization are illustrated by the example of a monopolist. Then they are discussed in the context of the competition. It can be shown that, under certain conditions, price-specification is also profitable in the competition for differentiated companies if the products are personalized at the same time. While in the case of homogeneous goods, the welfare of the consumers is increased by means of the pre-personalization, this is reduced in the case of personalized goods in the latter case.

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