Distributional Implications of the Internet: Can Price Discrimination Improve Farmers’ Welfare?

Abstract

A price discrimination model is proposed to explain extraneous information provided by internet sales sites for agricultural inputs. Whether an informative site is offered depends on price discrimination potential, which depends on how much farmers reveal heterogeneity by internet behavior. Price discrimination is greater if information benefits are negatively correlated with farm-size, explaining why extraneous (not product-related) information is offered on internet sales sights. Price discrimination adversely affects some farmers but may be beneficial on average because it generates free information. Outcomes depend on whether internet users are aware of price differentials generated by the reverse flow of clickstream information.