Can personalized pricing be a winning strategy in oligopolistic markets with heterogeneous demand customers? Yes, it can

Rosa Esteves ()

No 08/2021, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: This paper aims to understand under what market conditions, can competing symmetric fi rms employ personalized pricing as a winning strategy. A key departure of our paper from the literature is that we introduce customer heterogeneity in demand. If fi rms´data discloses only vertical information (demand heterogeneity), fi rms can only employ group pricing. This is always a winning strategy. When data discloses horizontal information (consumer preferences) and vertical information, perfect personalized pricing (PPP) becomes feasible. If data only discloses horizontal information, fi rms can only employ imperfect personalized pricing (IPP). By comparing uniform pricing (UP) with personalized pricing, we show that if the share of high demand customers in the market is greater than the share of low demand consumers, fi rms are always better off with no discrimination. More importantly, we show that if heterogeneity in purchase quantity is sufficiently high, then personalized pricing can be a winning strategy for all symmetric practice fi rms. If heterogeneity in consumer value is high and the share of high demand consumers is sufficiently low, in comparison to UP, both firms are better off under IPP. For an intermediate share of high demand consumers, firms can get higher profi ts under PPP than under UP and IPP.

JEL-codes: D43 D80 L13 L40 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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