Behaviour-based price discrimination with cross-group externalities

Abstract

Two platforms compete for heterogeneous firms and consumers. Platforms are allowed to discriminate prices on the consumers’ side according to their past purchase behaviour. The findings of the paper depend on two dimensions: the relative cross-side externalities and the consumer discounting relative to platform discounting. Price competition is strengthened in the poaching phase compared to the case where a uniform price is charged in both sides, whereas the early price competition is relaxed if firms exhibit weaker externalities than consumers and if the latter discount sufficiently the future. The overall effect on inter-temporal profits of platforms is negative, but consumers might be harmed by BBPD when they discount sufficiently the future. Finally, depending on consumers’ discounting, total welfare may increase or decrease going from the uniform pricing to the discriminatory pricing.