Behavior‐based price discrimination with nonuniform distribution of consumer preferences. Issue 2 (10th December 2021)

• Record Type: Journal Article
• Authors: Esteves, Rosa‐Branca; Liu, Qihong; Shuai, Jie
• Is Part Of: Journal of economics & management strategy. Volume 31:Issue 2(2022)
• Page Start: 324
• Page End: 355
• Publication Date: 2021-12-10
• Subjects: Economics -- Periodicals; Business -- Periodicals; Management -- Periodicals; Strategic planning -- Periodicals; 330.1
• DOI: 10.1111/jems.12466
• Languages: English
• ISSNs: 1058-6407

Abstract

Abstract: Existing theories of competition with behavior‐based price discrimination (BBPD, also known as price discrimination based on purchase history), typically assume that consumer valuations are distributed uniformly. This assumption implies that the availability of BBPD creates a prisoner's dilemma in which firms are worse off and consumers better off in equilibrium, relative to uniform pricing. In this paper, we consider a wider class of consumer distributions and show that profit and welfare results change qualitatively. When consumers are sufficiently massed at the center of the market (e.g., triangular distribution), BBPD boosts industry profits at the expense of consumers. Otherwise, the usual findings prevail. Our results highlight how assumptions on the density of consumer valuations play a decisive role on pricing and welfare outcomes.