Selling Consumer Data for Profit: Optimal ­Market-Segmentation Design and Its Consequences

Abstract

A data broker sells market segmentations to a producer with private cost who sells a product to a unit mass of consumers. This paper characterizes the revenue-maximizing mechanisms for the data broker. Every optimal mechanism induces quasi-perfect price discrimination. All the consumers with values above a cost-dependent cutoff buy by paying their values while the rest of consumers do not buy. The characterization implies that market outcomes remain unchanged even if the data broker becomes more powerful—either by gaining the ability to sell access to consumers or by becoming a retailer who purchases the product and sells to the consumers exclusively. (JEL D42, D82, D83, L81, M31)