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Imperfect Behavior‐Based Price Discrimination

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  • Stefano Colombo

Abstract

In this article, we develop a model encompassing behavior‐based discriminatory pricing as a limit case of a more general framework where firms have incomplete information about consumers’ purchase histories. We show that information accuracy has a nonmonotonic impact on profits and the worst situation for firms is when information accuracy is intermediate. We also discuss welfare and consumer surplus implications of information accuracy. Although welfare monotonically decreases with the level of information accuracy, there is an inverse U‐shape relationship between consumers surplus and information accuracy.

Suggested Citation

  • Stefano Colombo, 2016. "Imperfect Behavior‐Based Price Discrimination," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(3), pages 563-583, September.
    • Handle: RePEc:bla:jemstr:v:25:y:2016:i:3:p:563-583
    DOI: 10.1111/jems.12137
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    Cited by:

    1. Stefano Colombo & Paolo G. Garella & Noriaki Matsushima, 2023. "Strategic anonymity and behavior-based pricing," ISER Discussion Paper 1219, Institute of Social and Economic Research, Osaka University.
    2. Sumit Shrivastav, 2023. "Profitability of behavior-based price discrimination," Marketing Letters, Springer, vol. 34(4), pages 535-547, December.
    3. Stefano Colombo & Aldo Pignataro, 2022. "Information accuracy and collusion," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 638-656, August.
    4. Elias Carroni, 2018. "Poaching in media: Harm to subscribers?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(2), pages 221-236, June.
    5. Irina Baye & Philip Hanspach & Tim Reiz & Geza Sapi, 2024. "Customer Recognition and Mobile Geo-Targeting," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(4), pages 615-644, June.
    6. Baye, Irina & Reiz, Tim & Sapi, Geza, 2018. "Customer recognition and mobile geo-targeting," DICE Discussion Papers 285, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    7. Colombo, Stefano & Graziano, Clara & Pignataro, Aldo, 2024. "Imperfect history-based price discrimination with asymmetric market shares," Information Economics and Policy, Elsevier, vol. 67(C).
    8. Umezawa, Masashi, 2022. "Behavior-based price discrimination in a horizontally and vertically differentiated duopoly with switching costs," Information Economics and Policy, Elsevier, vol. 61(C).
    9. Shrivastav, Sumit, 2023. "Information, mis-information, and history-based price discrimination in a duopoly," Information Economics and Policy, Elsevier, vol. 65(C).
    10. Irina Baye & Geza Sapi, 2019. "Should Mobile Marketers Collect Data Other Than Geo‐Location?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 647-675, April.
    11. Rosa-Branca Esteves, 2021. "Can personalized pricing be a winning strategy in oligopolistic markets with heterogeneous demand customers? Yes, it can," NIPE Working Papers 08/2021, NIPE - Universidade do Minho.
    12. Sumit Shrivastav, 2021. "Price discrimination with imperfect consumer recognition," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-017, Indira Gandhi Institute of Development Research, Mumbai, India.
    13. Jeong, Yuncheol & Maruyama, Masayoshi, 2018. "Positioning and pricing strategies in a market with switching costs and staying costs," Information Economics and Policy, Elsevier, vol. 44(C), pages 47-57.
    14. Irina Baye & Geza Sapi, 2020. "Consumer foresight, customer data, and investment in targeting technology," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(4), pages 363-386, September.
    15. Xuan Wang & Chi To Ng, 2020. "New retail versus traditional retail in e-commerce: channel establishment, price competition, and consumer recognition," Annals of Operations Research, Springer, vol. 291(1), pages 921-937, August.
    16. Esteves, Rosa-Branca & Cerqueira, Sofia, 2017. "Behavior-based pricing under imperfectly informed consumers," Information Economics and Policy, Elsevier, vol. 40(C), pages 60-70.
    17. Stefano Colombo & Clara Graziano & Aldo Pignataro, 2021. "History-Based Price Discrimination with Imperfect Information Accuracy and Asymmetric Market Shares," CESifo Working Paper Series 9049, CESifo.
    18. Florian Peiseler & Alexander Rasch & Shiva Shekhar, 2022. "Imperfect information, algorithmic price discrimination, and collusion," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(2), pages 516-549, April.
    19. Lei Yan & Yuxiang Zhang & Shue Mei & Weijun Zhong, 2024. "Personalized pricing with persuasive advertising and the value of consumer information: a duopoly framework," Electronic Commerce Research, Springer, vol. 24(3), pages 1533-1562, September.
    20. Stefano Colombo, 2018. "Behavior‐ and characteristic‐based price discrimination," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(2), pages 237-250, June.

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