Behavior-based price discrimination and signaling of product quality

Jianpei Li and Wanzhu Zhang

MPRA Paper from University Library of Munich, Germany

Abstract: We analyse a two-period model in which a monopolistic seller may adopt behavior-based price discrimination (BBPD) and charge consumers different prices based on their purchasing histories. We show that if there is quality uncertainty and prices convey valuable information about product quality, BBPD can be profitable for the seller both when the seller can and can not commit to future prices, contrasting the traditional view that the seller would like to avoid BBPD due to strategic delay of consumption on the consumers' side. BBPD increases consumers' sensitivity to a price change in the first period and enables the high type seller to signal product quality with relatively low prices, effectively reducing signaling costs in comparison to uniform pricing. In the separating equilibria that survive the intuitive criterion, first-time purchasers pay lower prices than repeat purchasers.

Keywords: Behavior-based Price Discrimination (BBPD); Quality Uncertainty; Signaling (search for similar items in EconPapers)
JEL-codes: D82 L11 L15 (search for similar items in EconPapers)
Date: 2022-01-17
New Economics Papers: this item is included in nep-com, nep-cwa, nep-ind, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/111572/1/MPRA_paper_111572.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/115871/9/MPRA_paper_115871.pdf revised version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:111572

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().