Dynamic monopoly and consumers profiling accuracy

Didier Laussel (), Ngo Long and Joana Resende
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Joana Resende: Universidade do Porto = University of Porto

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Abstract: Using a Markov-perfect equilibrium model, we show that the use of customer data to practice intertemporal price discrimination will improve monopoly profit if and only if information precision is higher than a certain threshold level. This U-shaped relationship lends support to a popular view that knowledge is good only if it is sufficiently refined. When information accuracy can only be achieved through costly investment, we find that investing in profiling is profitable only if this allows to reach a high enough level of information precision. Consumers expected surplus being a hump-shaped function of information accuracy, we show that consumers have an incentive to lobby for privacy protection legislation which raises the cost of monopoly's investment in information accuracy. However, this cost should not dissuade firms to collect some information on customers' tastes, as the absence of consumers' profiling is actually detrimental to consumers.

Keywords: big data; consumers' collective action on privacy protection legislation; consumers profiling; dynamic monopoly; endogenous investment in profiling capability (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
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Published in Journal of Economics and Management Strategy, 2022, 31 (3), pp.579-608. ⟨10.1111/jems.12479⟩

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Journal Article: Dynamic monopoly and consumers profiling accuracy (2022)
Working Paper: Dynamic Monopoly and Consumers Profiling Accuracy (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03665780

DOI: 10.1111/jems.12479

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