Investment in customer recognition and information exchange

Oz Shy and Rune Stenbacka

Information Economics and Policy, 2013, vol. 25, issue 2, 92-106

Abstract: We investigate how costly acquisition and exchange of customer-specific information affects industry profit and consumer welfare. Consumers differ in their preferences for competing brands and in their switching costs between brands. Brand-producing firms use their acquired knowledge of customer-specific preferences to differentiate prices. We show that consumers are worse off when firms acquire information about their preferences and that information sharing between firms further reduces consumer welfare. Non-sharing of information supports a subgame perfect equilibrium that is also efficient. Finally, equilibrium investments in customer recognition may be excessive if firms bear low costs of acquiring customer-specific information.

Keywords: Customer recognition; Preference recognition; Price discrimination; Exchange of information; Switching costs (search for similar items in EconPapers)
JEL-codes: D4 D82 L1 L4 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Working Paper: Investment in customer recognition and information exchange (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:25:y:2013:i:2:p:92-106

DOI: 10.1016/j.infoecopol.2013.03.002

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