Special Issue on “Economics of Digitization”

The process of digitization has already had a profound impact on the functioning of the markets in the last decade, and it should bring even more interesting changes in the near future. This Special Issue on the Economics of Digitization includes four selected articles, which illustrate the implications of various aspects of digitization for consumers and firms. The analysis of price discrimination has recently taken a new – and very interesting – turn, almost one century after the concept was formally introduced (Pigou proposed the first taxonomy of price discrimination practices in his book “Economics of Welfare” in 1920). The reason for this renewed interest is to be found in the continuously decreasing costs of processing data and in improved data algorithms, which allow firms to know much more about their consumers’ willingness to pay. These technological developments have four important consequences for the economic analysis of price discrimination. First, perfect price discrimination is no longer seen as a theoretical benchmark but as a true possibility. Second, as consumers care about their privacy and can act to protect it, they become strategic players, meaning that firms must factor in the consumers’ potential reactions when they choose their pricing strategy. Third, as more firms can easily collect and process data, a more careful examination of competitive price discrimination is called for. Finally, as data is the necessary input for price discrimination, it becomes a commodity, whose trade needs to be analyzed. The article by Alexandre de Cornière and Rodrigo Montes (Consumer Privacy and the Incentives to Price-Discriminate in Online Markets) contributes to the first two issues: it studies the interaction between a monopoly firm, which can (imperfectly) identify consumers’ willingness to pay, and consumers, who can prevent