Is Your Price Personalized? Alleviating Customer Concerns with Inventory Availability Information

Extant literature has shown that personalized pricing (PP), i.e., customizing prices for individual customers, can benefit firms and some customers. However, customer concerns about being targeted by such practices have raised debates on PP tactics. Using a Bayesian persuasion framework, we study whether and under what conditions price can signal such PP implementation to customers. We also investigate whether disclosing inventory availability information can alleviate customer concerns and benefit the stakeholders, including the firm and customers. We consider a dynamic personalized pricing and information provisioning game between a firm and a market of heterogeneous customers. In the first period, the firm sets the price to learn the customer valuations and maximize revenue. In the second period, the firm may implement PP using customer purchase history. Customers are uncertain about the inventory availability and implementation of PP. Therefore, they may not precisely identify whether their purchase history will be used for pricing. However, they update their beliefs about the possibility of PP upon receiving new information. We first study myopic customers who only consider their immediate utility when purchasing. We then transition to strategic customers who take their future utility into account. We show that price alone cannot always signal PP, hurting the firm and customers. We establish conditions under which a binary inventory signal—where the firm marks the inventory as scarce when it is less than a threshold—increases the firm revenue and benefits customers. Thus, firms can create transparency over their pricing strategies by disclosing inventory availability information.