Data Tracking under Competition
We explore the welfare implications of data-tracking technologies that enable firms to collect consumer data and use it for price discrimination. The model we develop centers around two features: competition between firms and consumers’ level of sophistication. We find that the absence of data tracking may lead to a decrease in consumer surplus, even when consumers are myopic. Importantly, this result relies critically on competition: consumer surplus may be higher when data-tracking technologies are used only when multiple firms offer substitutable products.