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Preference‐Based Discrimination and Profit: On the Profitability of Discriminatory Spatial Policy

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  • Rodney B. Wallace

Abstract

In many markets, firms are able to conduct discriminatory strategies based on whether a customer prefers a competitors' product or their own. This article considers the impact of such discrimination in duopoly models in which firms set prices and conduct precontract‐customization efforts for some customers. We identify two effects: (1) The ability to conduct preference‐based discrimination increases equilibrium profit as long as long as precontract customization is at least modestly important in competitive dynamics; and (2) The ability to conduct preference‐based discrimination enhances social welfare if any precontract customization is done.

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  • Rodney B. Wallace, 2004. "Preference‐Based Discrimination and Profit: On the Profitability of Discriminatory Spatial Policy," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 351-369, June.
    • Handle: RePEc:bla:jemstr:v:13:y:2004:i:2:p:351-369
    DOI: 10.1111/j.1530-9134.2004.00014.x
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    Cited by:

    1. Rhee, Ki-Eun, 2014. "What types of switching costs to create under behavior-based price discrimination?," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 209-221.
    2. Hiroshi Aiura & Toshiki Kodera, 2024. "Location-price competition with freight absorption pricing in a data sharing economy," SN Business & Economics, Springer, vol. 4(1), pages 1-19, January.

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