Endogenous Acquisition of Information on Consumers Willingness to Pay in a Product Differentiated Duopoly

Qihong Liu () and Konstantinos Serfes
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Konstantinos Serfes: SUNY - Stony Brook

Industrial Organization from University Library of Munich, Germany

Abstract: We look at the incentives of two firms, who produce horizontally differentiated products, to acquire information of a certain quality on consumer willingness to pay. A firm who possesses such information can offer its product to different consumer groups at different prices (third degree price discrimination). We show that ``acquiring information'' and ``price discriminating'' is each firm's dominant strategy (for relatively low information costs) resulting in lower profit than when neither firm is engaged in price discrimination. Moreover, and given that firms price discriminate, equilibrium profits and average price exhibit a U-shape as a function of the information quality. Consumers are unambiguously better off under price discrimination as each one pays a lower price than the uniform non- discriminatory price.

Keywords: Price discrimination; information quality; information acquisition (search for similar items in EconPapers)
JEL-codes: D43 L13 O30 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2001-05-30
Note: Type of Document - Acrobat PDF; prepared on PC; to print on PostScript (letter size paper); pages: 34; figures: included
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Working Paper: Endogenous Acquisition of Information on Consumer Willingness to Pay in a Product Differentiated Duopoly (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpio:0105002

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