Abstract

I characterize the incidence of personalized pricing in general equilibrium with workers and capitalists. Monopolistically competitive firms sell differentiated varieties to households with heterogeneous incomes and an idiosyncratic taste for each variety, charging personalized two-part tariffs or a uniform price. With hyperbolic absolute risk aversion and a finite choke price for each variety, demand aggregates exactly over tastes and incomes, and each household's expected demand satisfies Marshall's second law unless tastes are more spread out than Pareto. Under these conditions, I prove that (i) when incomes are identical under uniform pricing, every worker gains  and every capitalist loses from personalizing all prices; (ii) with heterogeneous incomes, workers below an income threshold gain and those above lose, and an ownership threshold likewise partitions capitalists; and (iii) with elastic hours, personalizing every price is identical to keeping the uniform price and levying a progressive income tax and subsidy, balanced by a flat tax or subsidy on firms.

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If you have any queries regarding the seminar, please contact the seminar organisers Jonna Olsson, Andreas Haller, Morten N. Støstad or Helene Bjørndal Fosse.