Behavior-Based Pricing under Imperfectly Informed Consumers

Rosa Esteves () and Sofia Cerqueira ()
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Sofia Cerqueira: University of Minho

No 03/2017, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: This paper is a rst look at the dynamic e⁄ects of BBPD in a horizontally differentiation product market, where firms need to invest in advertising to generate awareness. When a firm is able to recognize customers with different purchasing histories, it may send them targeted advertisements with different prices. We show that in comparison to no discrimination, firms reduce their advertising efforts, charge higher first period prices and lower second period prices. As a result of that in contrast to the profit and consumer welfare results obtained under full informed consumers, we show that BBPD boosts industry profits at the expense of consumer welfare.

Date: 2017
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Journal Article: Behavior-based pricing under imperfectly informed consumers (2017)
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