Access to data for personalized pricing: can it raise entry barriers and abuse of dominance concerns?

Abstract

This paper offers some insights for competition policy agencies in charge of determining whether the use of data by dominant firms can harm competition and consumers. When the welfare criterion is consumer surplus we show that in markets characterized by sufficiently low entry costs, the ability of the incumbent firm to price discriminate is not enough to exclude the rival from the market. In this case, we show that price discrimination intensifies competition and overall consumer surplus is above its non-discrimination counterpart. In these markets there are no reasons to block price discrimination. In contrast, in markets with intermediate values of entry costs, the incumbent access to data for personalised prices, might act as an important barrier to entry. With no intervention, the entrant would decide to stay out and the incumbent would be able to increase profits at the expense of consumer welfare.