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Behavior-Based Price Discrimination with Strategic Customer Targeting

Antoine Dubus ()
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Antoine Dubus: ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich]

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Abstract: Two competing firms collect information that they use to charge targeted prices to their past customers, in a two-period framework of behavior-based price discrimination (BBPD). Firms can target consumers strategically: they can choose for each of their past customers whether to charge them personalized or homogeneous prices. I derive the optimal targeting strategy of each firm, which consists in charging personalized prices to past customers with the highest willingness to pay and a homogeneous price to the remaining consumers, including past customers with a low valuation on whom a firm has information. This targeting strategy maximizes rent extraction while softening competition between firms compared to non-strategic targeting under which firms target all their past customers. In turn, price-undercutting and poaching practices are not sustainable with strategic targeting, resulting in a lower consumer surplus compared with previous frameworks of BBPD.

Keywords: Behavior-based price discrimination; Strategic Targeting; Data collection (search for similar items in EconPapers)
Date: 2022-09-12
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-reg
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