Personalized pricing and advertising: Who are the winners?

• Type: Article in International Scientific Journal
• Date: 2019

Authors

Esteves, RB (Author) Other; Joana Resende (Author) FEP

Journal

Title: International Journal of Industrial Organization

Vol. 63

Pages: 239-282

ISSN: 0167-7187

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 19 Citations

Scopus - 20 Citations

Other information

Authenticus ID: P-00P-ZSC

DOI: 10.1016/j.ijindorg.2018.11.003

Abstract (EN): This paper investigates who wins and who loses when firms depart from a mass advertising/uniform pricing strategy (bench-mark model) to a targeted advertising/price discrimination one. Considering a duopoly market in which firms simultaneously compete in prices and advertising decisions, we examine the competitive and welfare effects of personalized pricing with targeted advertising by comparing equilibrium outcomes under customized advertising/ pricing decisions to the results arising under mass advertising and uniform pricing. We show that, when both firms compete in both market segments, all segment consumers are expected to pay higher average prices under the personalized advertising/pricing strategy. We also show that, in the context of our simultaneous game, targeted advertising with price discrimination might boost firms' profits in comparison to the case of mass advertising and uniform prices. The overall welfare effects of the personalized strategy are ambiguous. However, even when the personalized strategy boosts overall welfare, consumers might all be worse-off. Thus the paper gives support to concerns that have been raised re-garding the firms' ability to adopt personalized strategies to boost profits at the expense of consumers.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 44