EconPapers    
Economics at your fingertips  
 

Quality choice and behavior-based price discrimination

Hoe Sang Chung ()
Additional contact information
Hoe Sang Chung: Kangwon National University

Journal of Economics, 2020, vol. 131, issue 3, No 2, 223-236

Abstract: Abstract This study examines the impacts of behavior-based price discrimination (BBPD) on profits, consumer surplus, and welfare when firms choose their product qualities. To this end, we consider a differentiated duopoly model in which firms first make quality decisions, and in the two subsequent periods, compete in prices according to the pricing scheme, namely, uniform pricing or BBPD. We show that when consumers are more than moderately forward-looking, firms choose lower quality levels under BBPD than under uniform pricing. The profit and consumer surplus effects of BBPD relative to uniform pricing depend on the level of consumers’ myopia and/or quality improvement costs. When consumers are sufficiently myopic or quality costs are high, BBPD reduces industry profits and raises consumer surplus. However, the reverse happens when consumers are sufficiently forward-looking and quality costs are low. Interestingly, BBPD is detrimental to both firms and consumers when consumers are sufficiently forward-looking and quality costs are moderate, or when consumers are moderately forward-looking and quality costs are low. Social welfare is always lower under BBPD than under uniform pricing.

Keywords: Behavior-based price discrimination; Consumer myopia; Quality costs; D43; L13 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s00712-020-00711-x Abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:131:y:2020:i:3:d:10.1007_s00712-020-00711-x

DOI: 10.1007/s00712-020-00711-x

Access Statistics for this article

Journal of Economics is currently edited by Giacomo Corneo

More articles in Journal of Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2021-07-22
Handle: RePEc:kap:jeczfn:v:131:y:2020:i:3:d:10.1007_s00712-020-00711-x