The Benefits of Personalized Pricing in a Channel

In this note, we explore channel interactions in an information-intensive environment where the retailer can implement personalized pricing and the manufacturer can leverage both personalized pricing and entry into a direct distribution channel. We study whether a retailer can benefit from personalized pricing and how upstream personalized pricing or entry into a direct distribution channel affects the allocation of channel profit. We find that the retailer is worse off because of its own or upstream personalized pricing, even when the retailer is a monopoly. However, it may still be optimal for the retailer to embrace personalized pricing in order to reap the strategic benefit of deterring the manufacturer from selling direct and targeting end consumers.