Graduation Year

2020

Date of Submission

5-2020

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Philosophy, Politics, and Economics (PPE)

Reader 1

David Bjerk

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2020 Luke R Livingston

Abstract

Increasingly, improvements in goods and services are driven by data. This means that the value firms provide consumers often comes at near-zero marginal cost. Elementary economic theory states that firms will supply quantity such that their marginal revenue equals their marginal costs. Firms with near-zero marginal cost that adopt this pricing strategy offer their service as free or nearly free. Other firms, though, reject unitary pricing altogether. One alternative to unitary pricing is offer personalization, in which a firm uses specific consumer data to customize its good or service for that consumer and presents it to her at an individualized price, where price corresponds to the value that the consumer receives from this customization. This paper explores the extent to which offer personalization conforms with textbook economic theory and examines offer personalization through the framework of a monopolistically competitive market model. Offer personalization benefit firms in that it allows them to avoid the trade-off between quantity supplied and price. This paper finds it does not, though, upend foundational economic principles. This paper concludes that firms that begin to employ offer personalization will soon be followed by other offer-personalizing firms, resulting in a market in which firms compete on price as a share of consumer value-derived. This price must also compensate consumers for sharing the data that makes offer personalization possible.

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