Pricing with Cookies: Behavior-Based Price Discrimination and Spatial Competition

Chongwoo Choe, Stephen King and Noriaki Matsushima

No 07-17, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: 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
Date: 2017-04
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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