| Abstract: | When competing firms target information towards specific consumers through direct marketing activities, complete segmentation of markets can result. We analyze a two-stage duopoly where, prior to price competition, each firm targets information to specific consumers and only consumers informed by a firm can buy from it. This has the effect of endogenously determining market segments in a model of ‘sales'. In equilibrium, pure local monopoly emerges; firms target and sell to mutually exclusive market segments. When the cost of marketing approaches zero, market shares reflect relative production efficiency (equal shares when firms are symmetric); this may not be the case when marketing cost is high. |
