Behavior based price personalization under vertical product differentiation

• Type: Article in International Scientific Journal
• Date: 2021

Authors

Garella, P (Author) Other; Laussel, D (Author) Other; Joana Resende (Author) FEP

Journal

Title: International Journal of Industrial Organization

Serial No. Vol. 76 No. 102717

Pages: 1-21

ISSN: 0167-7187

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 18 Citations

Scopus - 19 Citations

Other information

Authenticus ID: P-00T-NCD

DOI: 10.1016/j.ijindorg.2021.102717

Abstract (EN): We study price personalization in a two period duopoly with vertically differentiated products. In the second period, a firm not only knows the purchase history of all customers, as in standard Behavior Based Price Discrimination models, but it also collects detailed information on its old customers, using it to engage in price personalization. The analysis reveals that there exists a natural market for each firm, defined as the set of customers that cannot be poached by the rival in the second period. The equilibrium is unique, except when firms are ex-ante almost identical. In equilibrium, only the firm with the largest natural market poaches customers from the rival. This firm has highest profits but not necessarily the largest market share. Aggregate profits are lower than under uniform pricing. All consumers gain, total welfare is higher herein than under uniform pricing if firms' natural markets are sufficiently asymmetric. The low quality firm chooses the minimal quality level and a quality differential arises, though the exact choice for the high quality depends upon the cost specification.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 21