Topic：Product Line Design with Uninformed Consumer Preferences: The Implications for Data Collection
Speaker: Zibin Xu, USC Marshall School of Business, Los Angeles, CA
Time： September 16 (Sunday) 9 am to 11 am
Host：Assistant Professor Gao Yuetao
With the explosion of digital technologies, marketers can collect abundance of usage data to learn about consumer preferences and design relevant products. However, consumer protection advocates raise worries that data collection may also subject consumers to exploitation through better price discrimination. This concern is especially important when consumers have uninformed preferences -imperfect prior knowledge about their marginal match value with the firm’s product quality. By collecting data in aggregate, firm can isolate the environmental noises that affect consumers’ usage experience and better estimate consumers’ match value than consumers themselves.
This research examines three questions related to anonymous usage data collection: Do consumers receive better fitting products or simply have more surplus extracted? When should consumers collectively opt out? Is data collection ever unprofitable? I develop an analytical model of a monopoly firm designing vertically-differentiated products for rational consumers who observe noisy private signals about their marginal match value of product quality. Collecting these signals may improve both the firm’s profit and every consumer’s surplus, when rational suspicion prevents the firm from manipulating consumers’ beliefs. It is firm-optimal to signal to the uninformed consumers with high match value by lowering the price of the high quality product while raising the quality of the low quality product. This tends to reverse the classic quality distortion in product line design. In other cases, however, data collection may either (1) increase the firm’s ability of second-degree price discrimination, leading consumers to collectively opt out, or (2) harm the firm due to uninformed consumers’ suspicions about being exploited.
Zibin Xu is a Ph.D candidate in marketing at the University of Southern California. He studies the economics of marketing strategy,particularly as it applies to pricing, communication, product line design, consumer privacy, and preference learning. He has taught entrepreneurship and marketing fundamentals at three American universities and won university excellence awards in teaching at USC. His empirical research has appeared in IEEE Transactions on Engineering Management.