Price Discrimination and Privacy: a Note

In many instances of price discrimination, a seller of an item is in possession of signals from competing buyers regarding their private valuation for the item. While intuition may suggest that a seller should always exploit all available information, our paper shows that it is actually in the interests of the seller to strategically ignore the information contained in the signals with positive probability, i.e. to (at least) sometimes price the item in a nondiscriminatory way according to a fixed rule. Such a “mixed” strategy induces buyers to send more informative signals in equilibrium. Thus the seller can offset any revenue loss in states where he ignores information by the gains made due to the larger amount of information now communicated in the signals.