Price Discrimination With Nested Consideration

Abstract

This paper examines price discrimination by consideration in an oligopoly with nested reach. Consumers obtain a ranking of the firms and consider them consecutively, differing in how far down the list they go. A firm's product matches a consumer's preferences with an exogenous probability. In sufficiently asymmetric markets, under both uniform and discriminatory pricing, in equilibrium, competition is duopolistic: only two firms use any price interval. Firms face pricing trade-offs due to consideration heterogeneity. Price discrimination alleviates these trade-offs, but it intensifies competition. Compared to uniform pricing, it reduces industry profits and benefits consumers. In this setting, limitations on the use of consumer data may benefit the industry at the expense of consumers.