Pricing with customer recognition |
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Authors: | Rosa-Branca Esteves |
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Institution: | a Department of Economics and NIPE, University of Minho, Campus de Gualtar, 4710 Braga, Portugal |
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Abstract: | This article studies the dynamic effects of behaviour-based price discrimination and customer recognition in a duopolistic market where the distribution of consumers' preferences is discrete. Consumers are myopic and firms are forward looking. In the static and first-period equilibrium firms choose prices with mixed strategies. When price discrimination is allowed, forward-looking firms have an incentive to avoid customer recognition, thus the probability that both will have positive first-period sales decreases as they become more patient. Furthermore, an asymmetric equilibrium sometimes exists, yielding a 100–0 division of the first-period sales. As a whole, price discrimination is bad for profits but good for consumer surplus and welfare. |
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Keywords: | Competitive behaviour-based price discrimination Discrete distribution of consumer preferences Economic effects |
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