Endogenous personalized pricing in the Hotelling model

Harold Houba, Evgenia Motchenkova and Hui Wang

Economics Letters, 2023, vol. 225, issue C

Abstract: We study endogenous personalized pricing in Hotelling’s model with vertically differentiated products, cost asymmetries and linear adjustment costs. We characterize the equilibrium and its welfare consequences. Adopting personalized pricing is the dominant strategy for both companies. The less efficient company never gains compared to competition in uniform pricing. We clarify the conditions under which the more efficient company can gain from competition in personalized pricing. Aggregate consumer surplus increases, but personalized pricing can harm consumers who purchase from the more-efficient (high-quality) firm.

Keywords: Personalized prices; Hotelling model; Technology adoption; Oligopoly; Profit paradox (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 L4 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:225:y:2023:i:c:s0165176523000629

DOI: 10.1016/j.econlet.2023.111037

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