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

Didier Laussel (), Ngo Long and Joana Resende

Journal of Economic Dynamics and Control, 2020, vol. 114, issue C

Abstract: 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.

Keywords: Coase conjecture; Markov perfect equilibrium; Customer information; Monopoly; Informational rent (search for similar items in EconPapers)
JEL-codes: L12 L15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Quality and price personalization under customer recognition: A dynamic monopoly model with contrasting equilibria (2020)
Working Paper: Quality and Price Personalization under Customer Recognition: a Dynamic Monopoly Model with Contrasting Equilibria (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:114:y:2020:i:c:s0165188920300385

DOI: 10.1016/j.jedc.2020.103869

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