Quality and price personalization under customer recognition: A dynamic monopoly model with contrasting equilibria

• Type: Article in International Scientific Journal
• Date: 2020

Authors

Laussel, D (Author) Other; Van Long, N (Author) Other; Joana Resende (Author) FEP

Journal

Title: JOURNAL OF ECONOMIC DYNAMICS & CONTROL

Vol. 114

ISSN: 0165-1889

Publisher: Elsevier Science

Indexing

ISI Web of Knowledge - 7 Citations

Scopus - 7 Citations

Other information

Authenticus ID: P-00R-WGX

DOI: 10.1016/j.jedc.2020.103869

Abstract (EN): We present a model of market hyper-segmentation, where a monopolist acquires within a short time all information about the preferences of consumers who purchase its vertically differentiated products. The firm offers a new price/quality schedule after each commitment period. Lower consumer types may have an incentive to delay their purchases until next period to obtain a better introductory offer. The monopolist counters this incentive by offering higher informational rents. Considering the dynamic game played by the monopolist and its customers, we find that there is always a Markov perfect equilibrium (MPE) in which the firm immediately sells the good to all customers, offering the Mussa-Rosen static equilibrium schedule to first time customers (and getting full commitment profits). However, if the commitment period between two offers is long enough, there is another MPE with gradual market expansion. Contrary to the Coasian result for a durable-good monopoly, we find that in both equilibria the profit of the monopolist increases (and the aggregate consumers surplus decreases) as the interval of commitment shrinks. The model yields policy implications for regulations on collection and storage of customers information.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 25