Pricing with Cookies: Behavior-Based Price Discrimination and Spatial Competition
Chongwoo Choe (),
Stephen King () and
No 07-17, Monash Economics Working Papers from Monash University, Department of Economics
We study a two-period model of spatial competition with two symmetric ﬁrms where ﬁrms learn customers’ preferences from the ﬁrst-period purchase, which they use for personalized pricing in the second period. With product choice exogenously ﬁxed with maximal diﬀerentiation, we show that there exist two asymmetric equilibria and customer switching is only from one ﬁrm to the other unless ﬁrms discount future too much. Firms are worse oﬀ with such personalized pricing than when they use pricing at higher levels of aggregation. When product choice is also made optimally, there continue to exist two asymmetric equilibria given suﬃciently small discounting, none of which features maximal diﬀerentiation. More customer information hurts ﬁrms, and more so when they make both product choice and pricing decisions.
Keywords: Spatial competition; behavior-based price discrimination; personalized pricing; endogenous product choice (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Pages: 62 pages
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
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Journal Article: Pricing with Cookies: Behavior-Based Price Discrimination and Spatial Competition (2018)
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