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Online search tracking and consumer privacy

Tracking technologies enable sellers to observe a consumer’s browsing history on the internet. Consumers are heterogeneous regarding how selective their taste is. In a framework in which consumers search sequentially for prices and match utilities, tracking enables sellers to learn about a consumer’s conditional willingness to pay. I find a unique equilibrium exhibiting an increasing price path. Moreover, I endogenize the consumer’s choice to disable tracking. Interestingly, the entire browsing history is disclosed in equilibrium despite sellers engaging in price discrimination. While consumers are always made better off compared to no tracking, the effect on profits depends on search costs.

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