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Behavior-based pricing under imperfectly informed consumers

Rosa-Branca Esteves and Sofia Cerqueira

Information Economics and Policy, 2017, vol. 40, issue C, 60-70

Abstract: This paper is a first look at the dynamic effects of behavior-based price discrimination in a horizontally differentiation product market, where firms need to invest in advertising to generate awareness. When a firm is able to recognize customers with different purchasing histories, it may send them targeted advertisements with different prices. We show that in comparison to no discrimination, firms reduce their advertising efforts, charge higher first period prices and lower second period prices. As a result of that in contrast to the profit and consumer welfare results obtained under full informed consumers, we show that behavior-based price discrimination boosts industry profits at the expense of consumer welfare.

Keywords: Competitive price discrimination; Customer recognition; Informative advertising; Retargeting strategies; Welfare (search for similar items in EconPapers)
JEL-codes: D43 L40 M37 (search for similar items in EconPapers)
Date: 2017
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