Benjamin Shiller

Associate Professor — Department of Economics — Brandeis University

Working Papers

Discreet Personalized Pricing [Paper]
Previously circulated under the title: "Optimized Sticky Targeted Pricing"
Abstract: Emerging tracking data allow precise predictions of individuals' reservation values. However, firms are reluctant to conspicuously implement personalized pricing because of concerns about consumer and regulatory reprisals. This paper proposes and applies a method which disguises personalized pricing as dynamic pricing. Specifically, a firm can sometimes tailor the ''posted'' price for the arriving consumer but privately commits to change price infrequently. Note this personalized pricing strategy should arise---possibly unintentionally---through algorithmic pricing when some employed variables reflect characteristics of the arriving consumer. I examine outcomes in four contexts: one empirical and three hypothetical distributions of consumer valuations. While one may expect this strategy to be most profitable for low popularity items, I find, counterintuitively, that this strategy raises profits most for medium popularity products. Moreover, typically observable measures of price discrimination suggest it is most intense for these products. Furthermore, improvements in the precision of individual-level demand estimates raise both the popularity-level where absolute profit gains peak and the range of popularities this strategy can be profitably applied to. I conclude that this is an auspicious strategy for online platforms, if not already secretly in use.

Are Coarse Ratings Fine? Application to Crashworthiness Ratings (with Siqi Liu and Bhoomija Ranjan) [Paper]
Abstract: We investigate the impact of intentionally coarsening ratings in the context of automobile safety ratings. First, we construct a novel univariate continuous crashworthiness rating from crash test measurements and observed fatality rates. We then estimate a random coefficient model of vehicle demand under status quo coarse ratings and simulate outcomes under counterfactual continuous ratings. We find that consumers alter vehicle choices, thereby reducing fatalities by 7.4% --- implying 1850 fewer US fatalities annually. Finally, we explore whether incentives to produce crashworthy vehicles are reduced enough to offset benefits of finer information. We conclude that a continuous rating format would reduce fatalities.


Does Amazon Exercise its Market Power? Evidence from Toys R Us (with Leshui He and Imke Reimers) The Journal of Law & Economics (Accepted) [Paper]
Abstract: Since its founding, Amazon has established a reputation for being consumer friendly by consistently offering low prices. However, recent antitrust concerns about dominant online platforms have revived questions about whether Amazon uses its market share to exploit consumers. Using the sudden U.S. exit of Toys R Us as a natural experiment, we find that Amazon's prices increased by almost 5% in the wake of the exit, with larger increases for popular products most likely stocked by Toys R Us. Thus, despite Amazon's long-standing reputation for low prices, it may exploit increases in market power as traditional retailers cease operating.
Approximating Purchase Propensities and Reservation Prices from Broad Consumer Tracking International Economic Review, 2020 [Paper]
Previously circulated under the title: "First-Degree Price Discrimination Using Big Data"
Policy impact: Cited by White House Policy Report
Abstract: A consumer's web-browsing history, now readily available, may be much more useful than demographics for both targeting advertisements and personalizing prices. Using a method that combines economic modeling and machine learning methods, I find a striking difference. Personalizing prices based on web-browsing histories increases profits by 12.99%. Using demographics alone to personalize prices raises profits by only 0.25%, suggesting the percent profit gain from personalized pricing has increased 50-fold. I then investigate whether regulations intended to prevent price gouging increase aggregate consumer surplus. Two feasible regulations considered offer at best modest improvements.
Data Supplement Read Me , Replication Data
The Impacts of Telematics on Competition and Consumer Behavior in Insurance (with Imke Reimers) The Journal of Law & Economics, 2019 [Paper]
Abstract: Concerns about anti-competitive effects of proprietary data collection have motivated recent European data portability laws. We investigate such concerns and search for evidence of direct benefits of data collection in the context of Pay How You Drive (PHYD) auto insurance, which offers tailored discounts to drivers monitored by telematics devices. We exploit the staggered entry of PHYD insurance across states and insurers in a difference-in-differences framework, and we replicate the main findings using state insurance regulations as instruments for entry timing. We find a meaningful impact of PHYD programs on fatal accidents, but we find no evidence of antitrust concerns.
The Effect of Ad Blocking on Website Traffic and Quality (with Joel Waldfogel and Johnny Ryan) The RAND Journal of Economics, 2018 [Paper]
Previously circulated under the title: "Will Ad Blocking Break the Internet?"
Press Coverage: VOX EU, Business Insider
Abstract:Ad blocking software allows Internet users to obtain information without generating ad revenue for site owners, potentially undermining investments in content. We explore the impact of site-level ad blocker usage on website quality, as inferred from traffic. We find that each additional percentage point of site visitors blocking ads reduces its traffic by 0.67% over 35 months. Impacted sites provide less content over time, providing corroboration for the mechanism. Effects on revenue are compounded; ad blocking reduces visits, and remaining visitors blocking ads do not generate revenue. We conclude that ad blocking poses a threat to the ad-supported web.
Digital Distribution and the Prohibition of Resale Markets for Information Goods Quantitative Marketing and Economics, 2013 [Paper]
Abstract: An existing theoretical literature finds that frictionless resale markets cannot reduce profits of monopolist producers of perfectly durable goods. This paper starts by presenting logical arguments suggesting this finding does not hold for goods consumers tire of with use, implying the impact of resale is an empirical question. The empirical impact is then estimated in the market for video games, one of many markets in which producers may soon legally prevent resale by distributing their products digitally as downloads or streamed rentals. Estimation proceeds in two steps. First, demand parameters are estimated using a dynamic discrete choice model in a market with allowed resale, using data on new sales and used trade-ins. Then, using these parameter estimates, prices, profits, and consumer welfare are simulated under counterfactual environments. When resale is allowed, firms are unable to prevent their goods from selling for low prices in later periods. The ability to do so by restricting resale outright yields significant profit increases. Renting, however, does not raise profits as much due to a revenue extraction problem.
The Challenge of Revenue Sharing with Bundled Pricing: An Application to Digital Music (with Joel Waldfogel) Economic Inquiry, 2013 [Paper]
Abstract: Although bundling can substantially increase profits relative to standalone pricing, particularly for zero‐marginal‐cost information products, it has one major problem: bundling produces revenue that is not readily attributable to particular pieces of intellectual property, creating a revenue division problem. We evaluate several possible solutions using unique song valuation survey data. We find the Shapley value, a well‐motivated theoretical solution, is universally incentive compatible (all bundle elements fare better inside the bundle than under standalone pricing), but revenue‐sharing schemes feasible with readily available consumption data are not. Among feasible schemes, Ginsburgh and Zang's modified Shapley value performs best.
Music for a Song: An Empirical Look at Uniform Pricing and Its Alternatives (with Joel Waldfogel) The Journal of Industrial Economics, 2011 [Paper]
Press Coverage: The Economist, VOX EU
Abstract: With digital music as its context, this paper quantifies how much money would be made using alternatives to uniform pricing. Using survey-based data on nearly 1,000 students' valuations of 100 popular songs in early 2008 and early 2009, we find that various alternatives can raise both producer and consumer surplus. Digital music revenue could be raised by between a sixth and a third relative to profit-maximizing uniform pricing. While person-specific uniform pricing can raise revenue by over 50 per cent, none of the non-discriminatory schemes raise revenue's share of surplus above 40 per cent of total surplus.