Personalized Pricing in the Online Travel Market

Abstract

In this thesis, the effect and implications of personalized pricing mechanisms in the online travel market are examined. Through economic theory and legal analysis, the research analyzes the impact of AI-based price algorithms and user profiling on market efficiency, consumer welfare, and data protection in regard to EU law. Through an economic analysis grounded in Bertrand competition, it is demonstrated that personalized pricing transforms the market from one characterized by price transparency and intense competition to a fragmented structure of data-driven micromarkets. In these markets, firms act as monopolists toward individual consumers, setting prices based on estimated willingness to pay. This leads to increased market efficiency without deadweight loss, but with a highly skewed welfare distribution favoring producers. The legal analysis assesses the current regulatory framework, focusing primarily on the General Data Protection Regulation (GDPR) and the Digital Markets Act (DMA). It is found that GDPR requirements for transparency, lawful basis, and valid consent can theoretically be met, though practical challenges remain, especially regarding automated decision-making and information asymmetry. DMA introduces additional obligations for designated gatekeepers, such as Booking.com, but applies asymmetrically and may distort competition between regulated and unregulated firms. In the integrated analysis, three regulatory proposals are evaluated: extending DMA obligations to all firms using personalized pricing, enhancing the GDPR’s transparency obligations via a dedicated provision, and restricting personalized pricing to discounts only. It is concluded that the second proposal — a clarification and strengthening of the information obligation — offers the most balanced and proportionate regulatory response. This approach supports efficient allocation, strengthens consumer rights, promotes fair competition, and fosters innovation, thereby contributing to a more equitable digital market environment.