Dynamic Monopoly and Consumers Profiling Accuracy

Didier Laussel (), Ngo Long and Joana Resende

No 9346, CESifo Working Paper Series from CESifo

Abstract: Using a Markov-perfect equilibrium model, we show that the use of customer data to practice intertemporal price discrimination will improve monopoly profit if and only if information precision is higher than a certain threshold level. This U-shaped relationship lends support to a popular view that knowledge is good only if it is sufficiently refined. When information accuracy can only be achieved through costly investment, we find that investing in profiling is profitable only if this allows to reach a high enough level of information precision. Consumers expected surplus being a hump-shaped function of information accuracy, we show that consumers have an incentive to lobby for privacy protection legislation which raises the cost of monopoly’s investment in information accuracy. However, this cost should not dissuade firms to collect some information on customers’ tastes, as the absence of consumers’ profiling is actually detrimental to consumers.

Keywords: consumers profiling; endogenous investment in profiling capability; dynamic monopoly; consumers‘ collective action on privacy protection legislation (search for similar items in EconPapers)
JEL-codes: C73 D42 L12 L15 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cwa, nep-ind, nep-mic, nep-ore and nep-reg
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Journal Article: Dynamic monopoly and consumers profiling accuracy (2022)
Working Paper: Dynamic monopoly and consumers profiling accuracy (2022)
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