Search and Price Discrimination Online

This paper theoretically studies price discrimination based on search costs. Shoppers have a zero and nonshoppers a positive search cost. A consumer faces a nondiscriminatory common price with some probability, or a discriminatory price. In equilibrium, firms mix over the common and the shoppers’ discriminatory prices but set a singleton nonshoppers’ discriminatory price. Consumer welfare increases if price discrimination is restricted enough. An individual firm’s profit can increase in the number of firms. These results have important implications for regulations that limit the tracking of consumers (e.g., European Union’s General Data Protection Regulation, California Consumer Privacy Act) and for evaluating competition online.