Behavior-Based Price Discrimination with Non-Uniform Distribution of Consumer Preferences

This paper provides useful implications for managers and marketing practitioners using data on consumers' purchase history for price discrimination purposes. It is also useful for competition policy agencies and consumer advocates. It highlights that the shape of preferences plays an important role to the understanding of the profit and welfare effects of this business practice. We depart from the existing literature, by assuming that the distribution of consumer preferences is non-uniform. We show that new profit and welfare results arise. In contrast to what happens under uniform preferences, we show that if consumer preferences are clustered at the centre of the market (e.g. triangle distribution), in comparison to uniform pricing, BBPD boosts industry profits at the expense of consumer welfare. We show that if consumer preferences approach a non-uniform reverse triangle, the standard results prevail